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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 customer's 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 customer's ear. Cost data for the product follow: $ Variable costs per unit: Direct materials Direct labour Variable factory overhead Variable selling and administrative 13 12 9 LO Total variable costs per unit 39 Fixed costs per month Fixed manufacturing overhead Fixed selling and administrative $276,000 161,000 Total fixed cost per month $437,000 The product sells for $60 per unit. Production and sales data for May and June, the first two months of operations are as follows: May Units Produced 23,000 23,000 Units Sold 17,000 29,000 June Income statements prepared by the Accounting Department using absorption costing are presented below. Sales May $1,020,000 June $1, 740,000 Cost of goods sold: Beginning inventory Add cost of goods manufactured 0 1,058,000 276,000 1,058,000 Goods available for sale Less ending inventory 1, 058, 000 276,000 1, 334, 000 0 Cost of goods sold 782,000 1, 334, 000 Gross margin Selling and administrative expenses 238,000 246,000 406, 000 306, 000 Operating income $ (8,000)) $ 100,000 Required: 1. Determine the unit product cost under each of the following methods. Absorption a costing Variable b. costing 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.) May June Variable expenses Variable cost of goods sold: 0 0 0 0 Total variable expenses 0 0 0 0 Fixed expenses: 0 0 Total fixed expenses Operating income (loss) $ 0 $ 0 3. Reconcile the variable costing and absorption costing operating income figures. (Loss amounts should be Indicated with a minus sign.) May June Variable costing operating income (loss) Add: Fixed manufacturing overhead cost deferred in inventory under absorption costing Deduct: Fixed manufacturing overhead cost released from inventory under absorption costing Absorption costing operating income $ 0 $ 0
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