Faxon Company, which has only one product, has provided the following data conce

Question

Faxon Company, which has only one product, has provided the following data concerning its most recent month of operations: selling price $137 units in beg. inventory 0 units produced 3,000 units sold 2900 units in beg. inv. 100 VC per unit direct material 40 variable cost per unit 53 var. manufacturing OH 6 variable selling and admin 9 fixed fixed manuf, OH $69,000 Fixed selling and admin 5,800 What is the product cost per unit using absorption costing? Using variable costing? What is the value of the ending inventory using absorption costing? Using variable costing? Prepare an income statement for the month using the absorption costing method (traditional income statement). Prepare an income statement for the month using the variable costing method and the contribution format income statement. Reconcile the variable costing and absorption costing net operating incomes for the month.

Explanation / Answer

Part 1

product cost per unit using absorption costing = direct material + Variable cost per unit + Variable manufacturing overhead + Fixed manufacturing overhead = 40 + 53 + 6 +(69000/3000) = 40 + 53 + 6 + 23 = $122 per unit

Part 2

the product cost per unit using variable costing = direct material + Variable cost per unit + Variable manufacturing overhead = 40 + 53 38 + 6 = $99 per unit

Part 3

the value of the ending inventory using absorption costing = ending inventory units * absorption cost per unit = 100 * 122= $12200

Part 4

the value of the ending inventory using variable costing = ending inventory units * variable cost per unit = 100*99 = $9900

Part 5

income statement for the month using the absorption costing method (traditional income statement)

Part 6

an income statement for the month using the variable costing method and the contribution format income statement

Fixed selling and administrative expenses

Total fixed expenses

5800

74800

Part 7

Reconcile the variable costing and absorption costing net operating incomes for the month

Sales(2900*137) 397300 Less : cost of goods sold (2900*122) 353800 Gross profit 43500 Less: selling and administrative expenses Variable (2900*9) 26100 Fixed 5800 Total selling and administrative expenses 31900 Net operating income 11600

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