Qadir Corporation, which has only one product, has provided the following data concerning its most recent month of operations: Selling price$93Units in beginning inventory 0Units produced 5,400Units sold 5,200Units in ending inventory 200Variable costs per unit: Direct materials$24Direct labor$27Variable manufacturing overhead$2Variable selling and administrative expense$10Fixed costs: Fixed manufacturing overhead$108,000Fixed selling and administrative expense$36,400Required: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 | $ | 24 |
| Direct labor | 27 | |
| Variable manufacturing overhead | 2 | |
| Unit product cost | $ | 53 |
Variable costing income statement
| Sales | $ | 483,600 | ||
| Variable expenses: | ||||
| Variable cost of goods sold | $ | 275,600 | ||
| Variable selling and administrative expense | 52,000 | 327,600 | ||
| Contribution margin | 156,000 | |||
| Fixed expenses: | ||||
| Fixed manufacturing overhead | 108,000 | |||
| Fixed selling and administrative expense | 36,400 | 144,400 | ||
| Net operating income | $ | 11,600 | ||
Computation of absorption costing net operating income:
Fixed manufacturing overhead per unit = Fixed manufacturing overhead ÷ Units produced = $108,000 ÷ 5,400 units = $20 per unit
Manufacturing overhead deferred in (released from) inventory = Fixed manufacturing overhead in ending inventory - Fixed manufacturing overhead in beginning inventory = ($20 per unit × 200 units) - $0 = $4,000
| Variable costing net operating income | $ | 11,600 |
| Add fixed manufacturing overhead costs deferred in inventory under absorption costing | 4,000 | |
| Absorption costing net operating income | $ | 15,600 |
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