4. Explain why absorption costing income was higher in April than in May when the units sold, selling price, and cost structure were the same in both months.

Need help explaing question 4.

Sheldon Company manufactures and sells a single product. The following costs are incurred to produce and sell the product. Variable costs per unit: Manufacturing: Direct materials $4.00 Direct labor $2.00 Variable manufacturing overhead $1.50 Variable selling and administrative $1.00 Fixed costs per month: Fixed manufacturing overhead $25,000 Fixed selling and administrative $13,000 The selling price is $20 per unit. The company budgets to produce 5,000 units in April and 4,000 units in May. During April, the company produced 5,000 units and sold 4,500 units. During May, the company produced 4,000 units and sold 4,500. P10-S2 Sheldon Selling price per unit Direct materials Direct labor Variable manufacturing overhead Variable manufacturing cost per unit Variable selling & administrative cost per unit Fixed manufacturing overhead Fixed selling & administrative costs FOH rate ($25,000 / budgeted units) April $20.00 $4.00 $2.00 $1.50 $7.50 $1.00 $25,000 $13,000 $5.00 May $20.00 $4.00 $2.00 $1.50 $7.50 $1.00 $25.000 $13,000 $6.25 Budgeted units to manufacture Actual units manufactured Units sold Beginning inventory units Ending inventory units 5,000 5,000 4,500 0 500 4,000 4,000 4,500 500 0 1. Assume the company uses absorption costing and a LIFO cost flow assumption: a. Compute the product inventoriable) cost per unit. 1. Assume the company uses absorption costing and a LIFO cost flow assumption: a. Compute the product inventoriable) cost per unit. b. Prepare an income statement for the month of April. a. Product cost per unit April May $4.00 $4.00 $2.00 DM DL VMOH FMOH Product cost per unit $2.00 $1.50 $5.00 $12.50 $1.50 $6.25 $13.75 underproduced overproduced b. Income Statement Sales $90,000.00 COGS $56,250.00 $90,000.00 $61,250.00 $28,750.00 Gross Pr. $4,500.00 Var Sell. F Sell $33,750.00 $4,500.00 $13,000 $16,250.00 $13,000 NI $11,250.00 2. Assume the company uses variable costing: a. Compute the product (inventoriable) cost per unit. Product cost per unit DM DL $4.00 $2.00 $1.50 $7.50 VMOH b. Prepare an income statement for the month of April. Income Statement Sales Var COGS Var Selling TCM FMOH FSelling NI $90,000.00 $33,750.00 $4,500.00 $51,750.00 $25,000 $13,000 $13,750.00 3. Assume the selling price and all per unit variable costs and total fixed costs remain the same in May as they were in April. Repeat parts 1 and 2 for May Absorption Costing May a. Product cost per unit DM DL $4.00 $2.00 $1.50 $6.25 VMOH FMOH $13.75 Sum(DM+DL+VMOH+FMOH) underproduced b. Income Statement Sales $90,000.00 COGS $61,250.00 Gross Pr. $28,750.00 Var Sell. $4,500.00 FSell $13,000 NI $16,250.00 = Units sold x Selling price = $13.75 x units sold = Sales - COGS = var. selling & Admin x Units sold = fixed selling and admin = gross PR - Var sell - F sell Variable Costing a. Product cost per unit DM DL VMOH $4.00 $2.00 $1.50 $7.50 Sum(DM+DL+VMOH) b. Income Statement Sales Var COGS Var Selling TCM $90,000.00= Units sold x Selling price $33,750.00= $7.50 x units sold $4,500.00= Sales - COGS S51,750.00= var. selling & Admin x Units sold $25,000.- Fixed Manufacturing and Overhead $13,000= Fixed Sell and Admin $11,250= gross PR - Var sell - Fixed sell FMOH Fixed Sell NI 4. Explain why absorption costing income was higher in April than in May when the units sold, selling price, and cost structure were the same in both months