Question

Name In Class October 30, 2019 West Mountain Sports Inc. produces and sells many recreational products. The company has just opened a new plant to produce backpacks that will be marketed throughout the United States. The following cost and revenue data relate to February, the first month of the plant's operation: $16 Units Produced Direct Material 24,000 20,000 $10 Units Sold Direct Labor Variable MOH Variable Selling & Admin Fixed MOH $110,400 $170,000 Fixed Selling & Admin Determine the per unit cost under both variable costing and absorption costing and prepare the income statement for each costing method Price per unit is $52

Answer 1

variable costing consider fixed overhead as period cost. whereas absorption costing treats fixed overhead as product cost.The fixed OH is carried to next period through inventory

	Unit cost as per variable costing	Unit cost as per absorption costing
Direct material	16	16
direct labor	10	10
Variable OH	4	4
fixed OH	4.6[110400/24000]	3.83[110400/24000*20000]/24000
Variable selling & Admin	6	6
Fixed Selling & Admin	8.5[170000/20000]	8.5
unit cost	49.1	48.33

income statement Variable costing

		Working
sales revenue	1,040,000	[20000*52]
Less:Variable costs
direct material	320,000	[20000*16]
direct labor	200,000	[20000*10]
variable OH	80,000	[20000*4]
Variable selling and administrative expense	120,000	[20000*6]
Contribution Margin	320,000	[1,040,000-320,000-200,000-80000-120000]
Less:fixed cost
Fixed OH	110,400
Fixed selling and administrative expense	170,000
Net Income Loss	39600$	[320000-110400-170000

Income statement under absorption costing

		Working
sales revenue	1,040,000	[20000*52]
Less:cost of goods sold
direct material	320,000	[20000*16]
direct labor	200,000	[20000*10]
variable OH	80,000	[20000*4]
Fixed OH	92000	[110400/24000*20000]
Gross profit	348,000	[1,040,000-320,000-200,000-80,000-92,000]
Less: selling and administrative expense
Variable selling and administrative expense	120,000	[6*20000]
Fixed selling and administrative expense	170,000
Net Income Loss	58000$	[348000-120000-170000]

difference between two methods net income would be fixed OH for closing inventory of [24000-20000]4000 units.