Question

Coverall Inc. produces and sells a unique type of case for a standard size tablet computer that is guaranteed waterproof but still allows for regular functionality of the tablet. The company has just opened a new plant to manufacture these cases, and the following cost and revenue data have been provided for the first month of the plant's operation in the form of a worksheet: Beginning inventory Units produced Units sold Selling price per unit 0 50,000 35,000 96 Selling and administrative expenses Variable per unit Fixed (total) 10 $ 735,000 Manufacturing costs 17 Direct materials cost per unit Direct labour cost per unit Variable manufacturing overhead cost per unit Fixed manufacturing overhead cost (total) $1,050,000 Since the new case is unique in design, management is anxious to see how profitable it will be and has asked that an income statement be prepared for the month Required 1. Assume that the company uses absorption costing a. Determine the unit product cost. Unit product cost b. Prepare an income statement for the month Cost of goods sold 0

Answer 1

a. Unit Prodct cost under absorbtion costing Amount Perticular Per Unit Direct Material Direct Labour Variable Manufacturing Overhead Fixed Manufacturing Overhead (1050000/50,000 Units Unit Product cost 17.00 12.00 5.00 21.00 55.00 b. Income Statement based on the absorption costing concept Tami's Creations, Inc Absorption Costing Income Statement For the Quarter Ended Mar 31 Sales Cost of Goods Sold: Cost of Goods Manufactured Variable Fixed Less: Inventorv. May 31 Cost of Goods Sold Gross Profit Selling and Administration Expenses Variable (10 35000 Fixed Income From Operations 33,60,000.00 17,00,000.00 10,50,000.00 8,25,000.00 19,25,000.00 14,35,000.00 3,50,000.00 7,35,000.00 3,50,000.00 Working: 1. Cost of Goods Manufactured and Closing Stock Direct Material Direct Labour Variable Manufacturing Cost Total Variable Cost of Manufacturing Fixed Manufacturing Cost Total Closing Stock Cost of Closing Stock (2750000 * 15000/50000) 850000 600000 250000 1700000 1050000 2750000 15000 units 825000

2 a. Unit Prodct cost under Variable costing Amount Perticular Per Unit Direct Material Direct Labour Variable Manufacturing Overhead Unit Product cost 17.00 12.00 5.00 34.00 Income Statement based on the variable costing concept Tami's Creations, Inc Variable Costing Income Statement For the Quarter Ended Mar 31 Sales Variable cost of goods sold Variable Cost of Goods Manufactured Less: Inventorv. May 31 Variable Cost of Goods Sold Manufacturing Margin Variable selling and administrative expenses Contribution Margin Fixed Cost Fixed Manufacturing Cost Fixed selling and administration expenses Income from operation 33,60,000.00 17,00,000.00 5,10,000.00 11,90,000.00 21,70,000.00 3,50,000.00 18,20,000.00 10,50,000.00 7,35,000.00 35,000.00 Working: 1. Variable cost of Goods Manufactured and Closing Stock Direct Material Direct Labour Variable Manufacturing Cost Total Variable Cost of Goods Manufatured Closing Inventory (1700000 15000 50000) 850000 600000 250000 1700000 510000 c. Reconciliation of Variable and Absorption Costing Net Operating Incomes Perticular Amount Variable costing net profit Add: Difference in closing stock (15000 (55 34 Absorbtion Costing Net Operating Income 35000 315000 350000