Pacheo Corporation, which has only one product, has provided the following data concerning its most recent month of operations: Selling price$55Units in beginning inventory 500Units produced 3,100Units sold 3,300Units in ending inventory 300Variable costs per unit: Direct materials$19Direct labor$26Variable manufacturing overhead$1Variable selling and administrative expense$4Fixed costs: Fixed manufacturing overhead$12,400Fixed selling and administrative expense$3,300 The company produces the same number of units every month, although the sales in units vary from month to month. The company's variable costs per unit and total fixed costs have been constant from month to month. Required:a. What is the unit product cost for the month under variable costing?b. Prepare a
contribution format income statement for the month using variable costing.c. Without preparing an income statement, determine the absorption costing net operating income for the month. (Hint: Use the reconciliation method.)
What will be an ideal response?
a.
Variable costing unit product cost
| Direct materials | $ | 19 |
| Direct labor | 26 | |
| Variable manufacturing overhead | 1 | |
| Unit product cost | $ | 46 |
b.
Variable costing income statement
| Sales | $ | 181,500 | ||
| Variable expenses: | ||||
| Variable cost of goods sold | $ | 151,800 | ||
| Variable selling and administrative expense | 13,200 | 165,000 | ||
| Contribution margin | 16,500 | |||
| Fixed expenses: | ||||
| Fixed manufacturing overhead | 12,400 | |||
| Fixed selling and administrative expenses | 3,300 | 15,700 | ||
| Net operating income | $ | 800 | ||
c.
Computation of absorption costing net operating income:
Fixed manufacturing overhead per unit = Fixed manufacturing overhead ÷ Units produced = $12,400 ÷ 3,100 units = $4 per unit
Manufacturing overhead deferred in (released from) inventory = Fixed manufacturing overhead in ending inventory - Fixed manufacturing overhead in beginning inventory = ($4 per unit × 300 units) - ($4 per unit × 500 units) = -$800
| Variable costing net operating income | $ | 800 | |
| Deduct fixed manufacturing overhead costs released from inventory under absorption costing | (800 | ) | |
| Absorption costing net operating income | $ | 0 | |
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