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Audiophonics Limited manufactures and sells high-quality and durable ear buds for use with personal electronics that are custom moulded to each customers ear. Cost data
Audiophonics Limited manufactures and sells high-quality and durable ear buds for use with personal electronics that are custom moulded to each customers ear. Cost data for the product follow:
Variable costs per unit: | |||
Direct materials | $ | 15 | |
Direct labour | 21 | ||
Variable factory overhead | 8 | ||
Variable selling and administrative | 7 | ||
Total variable costs per unit | $ | 51 | |
Fixed costs per month: | |||
Fixed manufacturing overhead | $ | 170,000 | |
Fixed selling and administrative | 187,000 | ||
Total fixed cost per month | $ | 357,000 | |
The product sells for $74 per unit. Production and sales data for May and June, the first two months of operations, are as follows:
Units Produced | Units Sold | |
May | 17,000 | 14,000 |
June | 17,000 | 20,000 |
Income statements prepared by the Accounting Department using absorption costing are presented below:
May | June | |||||
Sales | $ | 1,036,000 | $ | 1,480,000 | ||
Cost of goods sold: | ||||||
Beginning inventory | 0 | 162,000 | ||||
Add cost of goods manufactured | 918,000 | 918,000 | ||||
Goods available for sale | 918,000 | 1,080,000 | ||||
Less ending inventory | 162,000 | 0 | ||||
Cost of goods sold | 756,000 | 1,080,000 | ||||
Gross margin | 280,000 | 400,000 | ||||
Selling and administrative expenses | 285,000 | 327,000 | ||||
Operating income | $ | (5,000) | $ | 73,000 | ||
Required: 1. Determine the unit product cost under each of the following methods. 2. Prepare variable costing income statements for May and June using the contribution approach. (Do not leave any empty spaces; input a 0 wherever it is required.) 3. Reconcile the variable costing and absorption costing operating income figures. (Loss amounts should be indicated with a minus sign.)
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