Answers
Answer-a)- Unit product cost under Absorption costing= $81 per unit.
Explanation- Unit product cost under Absorption costing:-Direct materials + Direct Labor+ Variable manufacturing overhead + fixed manufacturing overhead
=$42+$28+$1+$10
= $81 per unit
Unit fixed manufacturing overhead= fixed manufacturing overhead/No. of units produced
=$62000/6200 units
=$10 per unit
b)- Unit product cost under Variable costing= $71 per unit.
Explanation-Unit product cost under Variable costing:-Direct materials + Direct Labor+ Variable manufacturing overhead
=$42+$28+$1
= $71 per unit
c)-
| LEE OMPANY | |||
| Income statement (Using absorption costing approach) | |||
| Particulars | Amount | ||
| $ | |||
| Sales (a) | 5900 units*$95 per unit | 560500 | |
| Less:- Cost of goods sold (b) | |||
| Opening inventory | 100 units*$81 per unit | 8100 | |
| Add:- Cost of goods manufactured | 440200 | ||
| Direct materials | 6200 units*$42 per unit | 260400 | |
| Direct labor | 6200 units*$28 per unit | 173600 | |
| Variable manufacturing overhead | 6200 units*$1 per unit | 6200 | |
| Fixed Manufacturing overhead | 35400 | ||
| Cost of goods available for sale | 483700 | ||
| Less:- Closing inventory | 400 units*$81 per unit | 32400 | 451300 |
| Gross margin C= a-b | 109200 | ||
| Less:-Variable selling & administrative exp. | 5900 units*$5 per unit | 29500 | |
| Less:- Fixed costs | |||
| Selling & administrative exp. | 62000 | ||
| Net Income | 17700 | ||
d)-
| LEE COMPANY | |||
| Income statement (Using variable costing approach) | |||
| Particulars | Amount | ||
| $ | |||
| Sales (a) | 5900 units*$95 per unit | 560500 | |
| Less:- Variable cost of goods sold (b) | |||
| Opening inventory | 100 units*$71 per unit | 7100 | |
| Add:- Variable cost of goods manufactured | 440200 | ||
| Direct materials | 6200 units*$42 per unit | 260400 | |
| Direct labor | 6200 units*$28 per unit | 173600 | |
| Variable manufacturing overhead | 6200 units*$1 per unit | 6200 | |
| Variable cost of goods available for sale | 447300 | ||
| Less:- Closing inventory | 400 units*$71 per unit | 28400 | 418900 |
| Gross contribution margin C= a-b | 141600 | ||
| Less:-Variable selling & administrative exp. | 5900 units*$5 per unit | 29500 | |
| Contribution margin | 112100 | ||
| Less:- Fixed costs | |||
| Manufacturing overhead | 62000 | ||
| Selling & administrative exp. | 35400 | ||
| Net Income | 14700 | ||
e)-
| Reconciliation between net operating income under variable & absorption costing method | ||
| Particulars | Amount | |
| $ | ||
| Net income under variable costing method | 14700 | |
| Less:-Fixed manufacturing overheads brought in (opening inventories) | 100 units*$10 per unit | 1000 |
| Add:-Fixed manufacturing overheads carried forward in(closing inventories) | 400 units*$10 per unit | 4000 |
| Net income under absorption costing method | 17700 | |
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