Leigh Company, which has only one product, has provided the following data concerning its most...

Question:

Leigh Company, which has only one product, has provided the following data concerning its most recent month of operations:

Selling price $100

Units in beginning inventory 300

Units produced 1,200

Units sold 1,400

Units in ending inventory 100

Variable cost per unit:

Direct materials $17

Direct labor $59

Variable manufacturing overhead $4

Variable selling and administrative $8

Fixed costs:

Fixed manufacturing overhead $9,600

Fixed selling and administrative $1,400

The company produces the same number of units every mont, although the sales in units vary from month to month. The company's variable costs per unit and total fixed costs have been constant from month to month.

REQUIREMENTS:

a) What is the unit product cost for the month under variable costing?

b) What is the unit product cost for the month under absorption costing?

c) Prepare a contribution format income statement for the month using variable costing.

d) Prepare an income statment for the month using absorption costing

e) Reconcile the variable costing and absorption costing net operating income for the month.

Variable Costing

Variable costing is a method used to determine gross profit. In the variable costing method, fixed manufacturing overhead cost is not included in the calculation of gross profit.

Answer and Explanation:

a. & b.

Variable costing:
Direct materials $17
Direct labor 59
Variable manufacturing overhead 4
Unit product cost $80

Absorption costing:
Direct materials $17
Direct labor 59
Variable manufacturing overhead 4
Fixed manufacturing overhead 8
Unit product cost $88


c. & d.

Variable costing income statement
Sales revenue $140,000
Variable expenses:
Variable cost of goods sold $112,000
Variable selling and administrative 11,200 123,200
Contribution margin 16,800
Fixed expenses:
Fixed manufacturing overhead 9,600
Fixed selling and administrative 1,400 11,000
Net operating income $5,800

Absorption costing income statement
Sales revenue $140,000
Cost of goods sold 123,200
Gross margin 16,800
Selling and administrative expenses:
Variable selling and administrative $11,200
Fixed selling and administrative 1,400 12,600
Net operating income $4,200


e.

Reconciliation
Variable costing net operating income $5,800
Deduct fixed manufacturing overhead costs released from inventory under absorption costing (1,600)
Absorption costing net operating income $4,200

Learn more about this topic:

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Variable Costing: Method, Formula & Advantages

from Financial Accounting: Help and Review

Chapter 13 / Lesson 5
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