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1b) Montero Limited has just completed its first year of operations. The unit costs on a normal costing basis are as follows: Manufacturing costs per
1b) Montero Limited has just completed its first year of operations. The unit costs on a normal costing basis are as follows: Manufacturing costs per unit: $ Direct materials (2 lbs at $3.00 per 6.00 Direct labour (1.5 hours at $10.00 per hour) 15.00 Variable overhead (1.5 hours at $4.00 per hour) 6.00 Fixed overhead (1.5 hours at $3.00 per hour) 4.50 Total 31.50 Selling and administrative costs: Variable $5.00 Fixed $123,000 During the year, the company had the following activity: Units produced 24,000 Units sold 22,300 Unit selling price $44.00 Direct labour hours worked 36,000 Actual fixed overhead was $12,000 less than budgeted fixed overhead. Budgeted variable overhead was $5,000 less than the actual variable overhead. The company used an expected actual activity of 36,000 direct labour hours to compute the predetermined overhead rates. Any overhead variances are closed to Cost of Goods Sold. Required: (1) Compute the unit cost using (a) absorption costing and (b) variable costing (ii) Prepare an absorption costing income statement (iii) Prepare a variable costing income statement (iv) Reconcile the difference between the two income statements
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