Question

ZKB company manufactures a unique device that is used by internet users to boost Wi-Fi signals. The following data relates to the first month of operation: Beginning inventory: 0 units Units produced: 40,000 units Units sold: 35,000 units .Selling price: $120 per unit Marketing and administrative expenses Variable marketing and administrative expenses per unit $4 Fixed marketing and administrative expenses per month: $1,120,000 Manufacturing costs Direct materials cost per unit: $30 Direct labor cost per unit:$14 Variable manufacturing overhead cost per unit: $4 .Fixed manufacturing overhead cost per month: $1,280,000 Management is anxious to see the success as well as profitability of newly designed unique booster Required 1. Calculate unit product cost and prepare income statement under variable costing system and absorption costing system 2. Prepare income statement under two costing system 3. Prepare a schedule to reconcile the net operating income under variable and absorption costing system Template >You can fill in the numbers in the embedded spreadsheet. (double click on the b. Variable costing (1) Calculation of unit product cost KB Company Direct labour ariable Manufacturing ohead Opening Iventery Add Cost of Goed Manuactured Product Cost per Unit Cest of goods available for sale Less Clasing Inetory Gross contribution Mgis (a) Income statements Contributien Margn a. Absorption costing: Fised marketing and admin sspenes 2KB Company Income Statement (Absorption Coating Net Opersting Inteme (3) Reconeiliation schedule Sales Less COG5 Net Operating Income (los) under variable costing Opening Inventory Add Cost of Geod Manufactured add fised manufacturing overhead deferred in Cost of goods available for sale Less Closing Inventory Gross Profit Net Oparating income under abarption eesting Var marketing and admin expenses Fixed marketing and admin Net Operating Income

Answer 1

1)	Calculation of unit product cost:	Absorption Costing	Variable Costing
	Direct materials	$                30.00	$              30.00
	Direct labor	$                14.00	$              14.00
	Variable manufacturing overhead	$                  4.00	$                4.00
	Fixed manufacturing overhead [See not below]	$                32.00	$                     -
	Unit product cost	$                80.00	$              48.00
	[Note: Fixed manufacturing overhead per unit = 1280000/40000 = $32.00]
2)	Income statements:
a)	Absorption costing:
	Sales [35000*120]		$     42,00,000
	Less: Cost of goods sold:
	Opening inventory	$                       -
	Add: Cost of goods manufactured (40000*80)	$       32,00,000
	Cost of goods available for sale	$       32,00,000
	Less: Closing inventory [5000*80]	$          4,00,000	$     28,00,000
	Gross profit		$     14,00,000
	Less: Marketing and administrative expenses:
	Variable [35000*4]	$          1,40,000
	Fixed	$       11,20,000	$     12,60,000
	Net operating income		$        1,40,000
b)	Variable costing:
	`		$     42,00,000
	Less: Cost of goods sold:
	Opening inventory	$                       -
	Add: Cost of goods manufactured (40000*48)	$       19,20,000
	Cost of goods available for sale	$       19,20,000
	Less: Closing inventory [5000*48]	$          2,40,000	$     16,80,000
	Gross contribution margin		$     25,20,000
	Less: Variable marketing and administrative expenses [35000*4]		$        1,40,000
	Contribution margin		$     23,80,000
	Less: Fixed expenses:
	Manufacturing overhead expenses	$       12,80,000
	Marketing and administrative expenses	$       11,20,000	$     24,00,000
	Net operating income		$          -20,000
3)	Reconciliation schedule:
	NOL under variable costing	$            -20,000
	Add: Fixed manufacturing overhead deferred in inventory [5000*32]	$          1,60,000
	NOI under absorption costing	$          1,40,000