Advance Products, Inc., has just organized a new division to manufacture and sel

Question

Advance Products, Inc., has just organized a new division to manufacture and sell specially designed tables using select hardwoods for personal computers. The division's monthly costs are shown in the schedule below: Manufacturing costs: Variable costs per unit: $82 $3 $264,600 Direct materials Variable manufacturing overhead Fixed manufacturing overhead costs (total) Selling and administrative costs: 10% of sales Variable Fixed (total) $159,000 Advance Products regards all of its workers as full-time employees and the company has a long- standing no-layoff policy. Furthermore, production is highly automated. Accordingly, the company includes its labor costs in its fixed manufacturing overhead. The tables sell for $310 each. During the first month of operations, the following activity was recorded: Units produced Units sold 4,200 3,400 Required: 1. Compute the unit product cost under absorption costing and variable costing. Unit Product Cost a. Absorption costing b. Variable costing

Explanation / Answer

Solution:

(A). Unit Product Cost Using Absorption Costing and Variable Costing:

  Pariculars Absorption Variable

Direct Material 83 83

Variable Mfg O.H 3 3

Variable Selling O.H 25 25

Fixed Variable O.H 38

Fixed Selling O.H 63

Total Unit Product Cost = 212 = 111

(B). Contribution Income Statement Using Variable Costing:

Sales ( 3,400 * 310 ) 10,54,000

Less: Cost of Goods Sold:

   Opening Inventory 0

   Variable Mfg Costs (4,200 * 111) 4,66,200

Less: Ending Inventory (800 * 111) 88,800 5,55,000

Contribution Margin = 4,99,000

Less: Fixed Mfg Exp 2,64,600

Less: Fixed Selling Exp 1,59,000

Net Income = 75,400

(C). Recouncilation of Variable Costing and Absortion Costing:

   Net Operating Income Using Variable Costing 75,400

Fixed Mfg O.H Under Using Absorption Costing 4,23,600

Net Operating Income Under Absorption Costing 4,99,000   

  

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