Alice Bohne obtained a patent on a small electronic device and organized Bohne Products, Inc., to produce and sell the device. During the first month of operations, the device was very well received on the market, so Ms. Bohne looked forward to a healthy profit. For this reason, she was surprised to see a loss for the month on her income statement. This statement was prepared by her accounting service, which takes great pride in providing its clients with timely financial data. The statement follows: Bohne Products, Inc. Income Statement Sales (21,000 units) 1,121,400 Variable expenses: Variable cost of goods sold $ 373,800 Variable selling and administrative expenses 224,280 598,080 523,320 Contribution margin Fixed expenses: Fixed manufacturing overhead Fixed selling and administrative expenses 240,000 333,000 573,000 Net operating loss $ (49,680) Ms. Bohne is discouraged over the loss shown for the month, particularly because she had planned to use the statement to encourage investors to purchase stock in the new company. A friend, who is a CPA, insists that the company should be using absorption costing rather than variable costing. He argues that if absorption costing had been used, the company would probably have reported a profit for the month. Selected cost data relating to the product and to the first month of operations follow: Ms. Bohne is discouraged over the loss shown for the month, particularly because she had planned to use the statement to encourage investors to purchase stock in the new company. A friend, who is a CPA, insists that the company should be using absorption costing rather than variable costing. He argues that if absorption costing had been used, the company would probably have reported a profit for the month. Selected cost data relating to the product and to the first month of operations follow: Units produced 24,000 Units sold 21,000 Variable costs per unit: Direct materials $ 9.30 Direct labor $ 4.90 Variable manufacturing overhead $ 3.60 Variable selling and administrative expenses $ 10.68 Required: 1. Complete the following: a. Compute the unit product cost under absorption costing. (Round your intermediate and final answer to 2 decimal places.) Unit product cost b. Redo the company's income statement for the month using absorption costing. (Round your intermediate calculations to 2 decimal places.) Bohne Products, Inc. Absorption Costing Income Statement Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating loss c. Reconcile the variable and absorption costing net operating income (loss) figures. (Loss and deduction amounts should be indicated with a minus sign. Round your intermediate calculations to 2 decimal places.) Bohne Products, Inc. Reconciliation of Variable Costing and Absorption Costing Net Operating Incomes Variable costing net operating income (loss) Absorption costing net operating income (loss) 2. During the second month of operations, the company again produced 24,000 units but sold 27,000 units. (Assume no change in total fixed costs.) a. Prepare a contribution format income statement for the month using variable costing. (Round your intermediate calculations to 2 decimal places.) Bohne Products, Inc. Variable Costing Income Statement Variable expenses: Fixed expenses b. Prepare an income statement for the month using absorption costing. (Round your intermediate calculations to 2 decimal places.) Bohne Products, Inc. Absorption Costing Income Statement c. Reconcile the variable costing and absorption costing net operating incomes. (Loss and deduction amounts should be indicated with a minus sign. Round your intermediate calculations to 2 decimal places.) Bohne Products, Inc. Reconciliation of Variable Costing and Absorption Costing Net Operating Incomes Variable costing net operating income (loss) Absorption costing net operating income (loss)
