question archive Fresh Air Products manufactures and sells a variety of camping products
Fresh Air Products manufactures and sells a variety of camping products
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Fresh Air Products manufactures and sells a variety of camping products. Recently the company opened a new plant to manufacture a deluxe portable cooking unit. Cost and sales data for the first month of operations are shown below:
Beginning inventory 0 units
Units produced 10,700
Units sold 8,900
Manufacturing costs
Fixed overhead $128,400
Variable overhead $6 per unit
Direct labour $12 per unit
Direct material $25 per unit
Selling and administrative costs
Fixed $207,400
Variable $4 per unit sold
The portable cooking unit sells for $110. Management is interested in the opening month’s results and has asked for an income statement. Assuming the company uses absorption costing: (a)
a) Calculate the manufacturing cost per unit.
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| Ans.a | Manufacturing cost per unit = $55 | |||
| Particulars | Amount | |||
| Direct materials | 25 | |||
| Direct labor | 12 | |||
| Variable overhead | 6 | |||
| Fixed overhead | 12 | |||
| Total manufacturing cost per unit | 55 | |||
| *Fixed overhead per unit = Fixed manufacturing overhead / NO. of units produced | ||||
| 128400 / 10700 | ||||
| 12 | ||||
| *In absorption costing all manufacturing costs (variable + fixed) are added | ||||
|
in the calculation of unit product cost. The income statement using absorption costing method is also provided here. |
||||
| Absorption costing Income statement | ||||
| Particulars | Amount | |||
| Sales (8900*110) | 979000 | |||
| Less: Cost of goods sold: | ||||
| Opening inventory | 0 | |||
| Add: Cost of goods manufactured (10700*55) | 588500 | |||
| Cost of goods available for sale | 588500 | |||
| Less: Ending inventory [(10700-8900)*55] | -99000 | 489500 | ||
| Gross profit | 489500 | |||
| Less: Variable selling and administrative expense (8900*4) | -35600 | |||
| Less: Fixed Selling and Administrative expenses | -207400 | |||
| Net operating income | 246500 | |||
