Question
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 | $ | 7 | |
Direct labour | 18 | ||
Variable factory overhead | 9 | ||
Variable selling and administrative | 4 | ||
Total variable costs per unit | $ | 38 | |
Fixed costs per month: | |||
Fixed manufacturing overhead | $ | 267,800 | |
Fixed selling and administrative | 226,600 | ||
Total fixed cost per month | $ | 494,400 | |
The product sells for $63 per unit. Production and sales data for May and June, the first two months of operations, are as follows:
Units Produced | Units Sold | |
May | 20,600 | 15,800 |
June | 20,600 | 25,400 |
Income statements prepared by the Accounting Department using absorption costing are presented below:
May | June | |||||
Sales | $ | 995,400 | $ | 1,600,200 | ||
Cost of goods sold: | ||||||
Beginning inventory | 0 | 225,600 | ||||
Add cost of goods manufactured | 968,200 | 968,200 | ||||
Goods available for sale | 968,200 | 1,193,800 | ||||
Less ending inventory | 225,600 | 0 | ||||
Cost of goods sold | 742,600 | 1,193,800 | ||||
Gross margin | 252,800 | 406,400 | ||||
Selling and administrative expenses | 289,800 | 328,200 | ||||
Operating income | $ | (37,000) | ) | $ | 78,200 | |
Required:
1. Determine the unit product cost under each of the following methods.
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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.)
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3. Reconcile the variable costing and absorption costing operating income figures. (Loss amounts should be indicated with a minus sign.)
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