Winston Products manufactures and sells a single product Cost data for the product are given Variable costs per unit Direct materials Variable manufacturing overhead $7 Direct labor 10 5 Variable selling and administrative 3 Total variable cost per unit $25 Fixed costs per month Fixed manufacturing overhead $315,000 Fixed selling and administrative 245,000 Total fixed cost per month $560,000 The product sells for $60 per unit Production and sales data for September and October, the first two months of operations, follow Units Produced Units Sold September 17,500 15,000 October 17,500 20,000 The companys Accounting Department has prepared the following absorption costing income statements for September and October September October Sales $900,000 $1,200,000 Cost of goods sold 600,000 800,000 Gross margin 300,000 400,000 Selling and administrative expenses 290,000 305,000 Net operating income $10,000 $95,000 Required Determine the unit product cost under a Absorption costing b Variable costing Prepare a Variable Costing income statement for September and October Reconcile the Variable costing and Absorption costing net operating incomes for both months The companys Accounting Department has determined the companys break even point to be 16,000 units per month, computed as follows Fixed cost per month Unit contribution margin $560,000 $35 per unit 16,000 units Im confused, said the president The accounting people say that our break even point is 16,000 units per month, but we sold only 15,000 units in September, and the income statement they prepared shows a $10,000 profit for that month Either the income statement is wrong, or the break even point is wrong Prepare a brief memo for the president, explaining what happened on the September absorption costing income statement

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Jul 12, 2024

Winston Products manufactures and sells a single product. Cost data for the product are given: Variable costs per unit: Direct materials Variable manufacturing overhead $7

Winston Products manufactures and sells a single product. Cost data for the product are given:

Variable costs per unit:

Direct materials

Variable manufacturing overhead

Direct labor

Variable selling and administrative

Total variable cost per unit

$25

Fixed costs per month:

Fixed manufacturing overhead

$315,000

Fixed selling and administrative

245,000

Total fixed cost per month

$560,000

The product sells for $60 per unit. Production and sales data for September and October, the first two months of operations, follow:

Units Produced

Units Sold

September 17,500

15,000

October 17,500

20,000

The companys Accounting Department has prepared the following absorption costing income statements for September and October:

	September October
Sales	$900,000 $1,200,000
Cost of goods sold	600,000 800,000
Gross margin	300,000 400,000
Selling and administrative expenses	290,000 305,000
Net operating income	$10,000 $95,000

Required:

Determine the unit product cost under: a. Absorption costing.

b. Variable costing.
Prepare a Variable Costing income statement for September and

October.
Reconcile the Variable costing and Absorption costing net

operating incomes for both months.
The companys Accounting Department has determined the

companys break-even point to be 16,000 units per month, computed as follows: Fixed cost per month Unit contribution margin

= $560,000 $35 per unit=16,000 units

Im confused, said the president. The accounting people say that our break-even point is 16,000 units per month, but we sold only 15,000 units in September, and the income statement they prepared shows a $10,000 profit for that month. Either the income statement is wrong, or the break-even point is wrong. Prepare a brief memo for the president, explaining what happened on the September absorption costing income statement.