Jazzy Ltd. produces and sells specialty shopping bags at $40 per bag. In May 2021, the company manufactured 30,000 bags (its normal volume) and sold 28.000 bags. There was no beginning inventory on May 1, 2021. Production information for May 2021 is as follows: 2 hours $8 Direct labour hours required per bag Direct labour rate per hour Direct materials cost per bag Variable manufacturing overhead per bag Variable selling expenses per bag Total fixed selling and administrative costs Total fixed manufacturing overhead $3 S5 $1 $100,000 $258,000 Required (a) (4 marks) Calculate the total manufacturing cost per bag under both absorption and variable costing. (b) (3 marks) Prepare income statement in good form for the month ended May 31, 2021, under absorption costing. (c) (2 marks) How much is the difference in net income between absorption costing and variable costing for May 2021? Explain how the difference can arise. Note: you are not required to prepare the variable costing income statement. (d) (2 marks) In our lecture we saw the video on car graveyards. Using the management accounting concepts you learnt in class, provide one possible reason why some car manufacturers end up with so many cars in the graveyards. Explain your reason. Jazzy Ltd. produces and sells specialty shopping bags at $40 per bag. In May 2021, the company manufactured 30,000 bags (its normal volume) and sold 28.000 bags. There was no beginning inventory on May 1, 2021. Production information for May 2021 is as follows: 2 hours $8 Direct labour hours required per bag Direct labour rate per hour Direct materials cost per bag Variable manufacturing overhead per bag Variable selling expenses per bag Total fixed selling and administrative costs Total fixed manufacturing overhead $3 S5 $1 $100,000 $258,000 Required (a) (4 marks) Calculate the total manufacturing cost per bag under both absorption and variable costing. (b) (3 marks) Prepare income statement in good form for the month ended May 31, 2021, under absorption costing. (c) (2 marks) How much is the difference in net income between absorption costing and variable costing for May 2021? Explain how the difference can arise. Note: you are not required to prepare the variable costing income statement. (d) (2 marks) In our lecture we saw the video on car graveyards. Using the management accounting concepts you learnt in class, provide one possible reason why some car manufacturers end up with so many cars in the graveyards. Explain your reason
