Information for Alta Products Ltd. is provided in P8-29A.
In P8-29A
Manufacturing costs
Variable costs per unit
Direct materials ...................................................................... $ 30
Direct labour ............................................................................ 40
Variable overhead ...................................................................... 10
Total fixed overhead ............................................................. 70,000
Selling and administrative costs
Variable 6% of sales
Fixed ............................................................................ $ 50,000
During August 2012, the following activity was recorded:
Units produced ...................................................................... 2,000
Units sold ............................................................................. 1,700
Selling price per unit ................................................................ $ 175
Instructions
(a) Assume the company uses normal costing and uses the budgeted volume of 2,500 units to allocate the fixed overhead rate rather than the actual production volume of 2,000 units. The company expenses production volume variance to cost of goods sold in the accounting period in which it occurs. Do the following:
1. Calculate the manufacturing cost per unit.
2. Prepare a normal-costing income statement for the month ended August 31, 2012.
(b) Reconcile the difference in net income between the absorption-costing and normal-costing methods.