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Stark, Inc., produces and sells a unique robot antenna. The company has just opened a new plant to manufacture the antenna, and the following cost

Stark, Inc., produces and sells a unique robot antenna. The company has just opened a new plant to manufacture the antenna, and the following cost and revenue data have been reported for the first month of the new plant's operation:

Selling price

$108

Beginning inventory

0

Units produced

35,000

Units sold

30,000

Selling price per unit

$50

Selling and Admin expenses:

Variable per unit

$2

Fixed (total)

$360,000

Manufacturing costs:

Direct material cost per unit

$9

Direct labour cost per unit

$8

Variable overhead cost per unit

$3

Fixed overhead cost (Total)

$525,000

Management is anxious to see how profitable the new antenna will be and has asked that an income statement be prepared for the month. Assume that direct labour is a variable cost.

Submission Instructions:

  1. Assuming that the company uses absorption costing, compute the unit product cost and prepare an income statement.
  2. Assuming that the company uses variable costing, compute the unit product cost and prepare an income statement.
  3. Explain the reason for any difference in the ending inventories under the two costing methods and the impact of this difference on reported operating income.

Question 3

  • Time: 16 minutes
  • Total: 10 marks

Tony Stark and Company has projected sales and production in units for the second quarter of the coming year as follows:

April

May

June

Sales

50,000

40,000

60,000

Production

60,000

50,000

50,000

Cash-related production costs are budgeted at $6 per unit produced. Of these production costs, 40% are paid in the month in which they are incurred and the balance in the following month. Selling and administrative expenses will amount to $140,000 per month. The accounts payable balance on March 31 totals $240,000, which will be paid in April.

All units are sold on account for $15 each. Cash collections from sales are budgeted at 60% in the month of sale, 30% in the month following the month of sale, and the remaining 10% in the second month following the month of sale. Accounts receivable on April 1 totaled $800,000 ($100,000 from February's sales and the remainder from March).

Submission Instructions

  1. Prepare a schedule for each month showing budgeted cash disbursements for Clay Company.
  2. Prepare a schedule for each month showing budgeted cash receipts for Clay Company.

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