Question
Lesley Company, which has just started its operation and has only one product, hired you as management consultant to help them evaluate their operations. The
Lesley Company, which has just started its operation and has only one product, hired you as management consultant to help them evaluate their operations. The CEO is quite confused with absorption costing and variable costing and which to base their future decisions. Their bookkeeper has provided the following data concerning its most recent month of operations:
Selling price P143
Units in beginning inventory 0
Units produced 1,200
Units sold 1,000
Units in ending inventory 200
Variable costs per unit:
Direct materials P33
Direct labor P52
Variable manufacturing overhead P1
Variable selling and administrative P7
Fixed costs:
Fixed manufacturing overhead P38,400
Fixed selling and administrative P4,000
- Can you please make an income statement for the month using the contribution format and the variable costing method.
- Can you please make an income statement for the month using the absorption costing method.
- Can you please cite the advantages and disadvantages of variable costing method and which method should the company use if they want to know how many units they should sell next period to achieve their target profit? Address and explain this to the management of Lesley Company.
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