Question

0.13 Europe Manufacturing's cost accountant has provided you with the following information for January operation Direct materials AED 20 per unit Fixed manufacturing overhead costs 130,000 Sales price AED 75 per unit Variable manufacturing overhead AED 10 per unit Direct labor AED 23 per unit Fixed marketing costs 55,000 Fixed administrative costs 50.000 Units produced and sold Use the last 5 digits of your ICT ID Variable marketing costs AED 3 permit Variable administrative costs AED 2 per unit Prsuwe a contribution margin income statement (24 marks)

Answer 1

NOTE: Let number of units sold (5 digit number) be 15,000 Europe Manufacturing Income Statement For the Month Ended January 31 Currency = AED Sales Revenue 1,125,000 (15000 units x AED 75] Variable Costs and Expenses: Direct Materials 300,000 [15000 units x AED 20] Direct Labor 345,000 [15000 units x AED 23] Manufacturing Overhead 150,000 [15000 units x AED 10] Marketing Costs 45,000 [15000 units x AED 3] Administrative Costs 30,000 [15000 units x AED 2] Total Variable Expenses 870,000 Contribution Margin 255,000 Fixed Expenses: Manufacturing Overhead 130,000 Marketing Costs 55,000 Administrative Costs 50,000 Total Variable Expenses 235,000 Net Operating Income 20,000 Under variable costing, varible manufacturing costs only shall be considered as product costs. As a result, all fixed manufacturing costs shall be recognized as expense for the year in which such fixed manufacturing overhead costs were incurred. As a result, there will be no deferred fixed manufacturing overhead costs from the previous period under variable costing. In other words, cost of goods sold for the year will be equal to number of units sold multiplied by the variable manufacturing costs such as direct materials, direct labor and variable manufacturing overhead costs. It implies that fixed overhead costs deferred from previous period through the beginning inventory of current period shall be ignored while preparing income statement under variable costing as those fixed overhead costs would have been claimed as expenditure for the previous period itself fully under variable costing. Fixed costs are those costs which would remain the same in total irrespective of level of production or sales. It is a committed cost to be incurred by the firm whether it carries out operations or not. As a result, fixed costs in total remain constant at all levels of sales or production but per unit cost varies. Variable costs are those costs which would remain the same per unit irrespective of level of production or sales. It is an unit cost to be incurred by the firm only when the firm carries out its business operation. As a result, variable costs per unit remain constant at all levels of sales or production but total cost varies.