BES Sdn Bhd operates in Changlon, producing a single product. BES has provided the following data concerning the month of May 2021 operation:

Item:

Selling price $185

Unit of beginning inventory 600

Unit produced 13,800

Unit sold 14,200

Unit of ending inventory 200

Selling and administrative $75,000

Manufacturing overhead $195,000

Variable cost per unit:

Direct materials $54

Direct labour $64.50

Manufacturing overhead $4.50

Selling and administrative $16.50

Manufacturing overhead $195,000The company produces the same number of units every month, although the sales in units vary from month to month. The variable costs per unit and total fixed costs have been constant from month to month.

REQUIRED:

(a) Compute the unit product cost for the month under Variable Costing.

(b) Prepare a contribution format income statement for the month using Variable Costing.

(c) Without preparing an income statement, determine the Absorption Costing net operating income for the month. (Hint: Use the reconciliation method.)

(d) WHAT IF ANALYSIS:

(i) Compute the net operating incomes for Variable Costing and Absorption costing, assuming the sales was 13,000 units. (Not need to prepare income statement, may modify the format or data used in (b) and (c) above)

(ii) Compute the net operating incomes for Variable Costing and Absorption costing, assuming the sales was 13,800 units. (No need to prepare income statement, may modify the format or data used in (b) and (c) above)

(e) Construct a table showing the comparisons of the net operating incomes between the two costing methods, for the three different sales figures. [Hint: Compare the net operating incomes derived from Requirement (b), (c), (d)(i) and (d)(ii).

(f) What conclusion can you make based on the comparative table in (e)?

\begin{tabular}{lr|lr} Item & & Variable cost per unit & \\ \hline Selling price & $185 & Direct materials & $54 \\ Unit of beginning inventory & 600 & Direct labour & $64.50 \\ Unit produced & 13,800 & Manufacturing overhead & $4.50 \\ Unit sold & 14,200 & Selling and administrative & $16.50 \\ Unit of ending inventory & 200 & & \\ Selling and administrative & $75,000 & & \\ Manufacturing overhead & $195,000 & & \\ \hline \end{tabular}