Question 1 (20 marks) A manufacturing company that produces a single product has provided the following data related to its operations during May:

Manufacturing costs:

Variable costs per unit: Direct materials $22.50

Direct labor $20.00

Variable manufacturing overhead $7.50

Fixed manufacturing overhead costs (total) $875,000

Selling and administrative costs:

Variable per unit $5.00

Fixed (total) $900,000

The product sells for $125 per unit. The company produced 35,000 units and sold 30,000 units in May. There is no beginning inventory.

Required:

a) Compute the breakeven sales dollars and margin of safety in sales dollars. (2 marks)

b) Determine the unit product cost under: (3 marks) i. Absorption costing. ii. Variable costing.

c) Prepare an income statement for the month using absorption costing. (5 marks)

d) Prepare a contribution format income statement for the month using variable costing. (5 marks)

e) Reconcile the variable costing and absorption costing net operating incomes in (c) and (d) above. (3 marks)

f) Suppose the company had same production volume in the following month, June but sold all units, making no ending inventory left. Fixed and variable manufacturing costs kept unchanged. Suppose the net income under Variable costing is $2,025,000. Compute the net income absorption costing. (Income statement is NOT required.) (2 marks)