LEANDER OFFICE PRODUCTS INC Income Statement $291,160 Sales (50,200 units) Varia

Question

LEANDER OFFICE PRODUCTS INC Income Statement $291,160 Sales (50,200 units) Variable expenses $134,536 39,156 Variable cost of goods sold* Variable selling and administrative 173,692 expenses 117,468 Contribution margin Fixed expenses Fixed manufacturing overhead Fixed selling and administrative expenses 121,290 15,060 136,350 Operating loss S (18,882) Consists of direct materials, direct labour, and variable manufacturing overhead Leander is discouraged over the loss shown for the month, particularly since she had planned to use the statement to encourage investors to purchase stock in the new company. A friend who is an accountant insists that the company should be using absorption costing rather than variable costing. He argues that if absorption costing had been used, the company would probably have reported a profit for the month Selected cost data relating to the product and to the first month of operations follow: Units produced Units sold Variable costs per unit: 62,200 50,200 Direct materials Direct labour Variable manufacturing overhead $ 1.04 $ 1.25 $ 0.39 Variable selling and administrative expenses 0.78 Required 1. Complete the following a. Compute the unit product cost under absorption costing. (Round your answer to 2 decimal places.) b. Redo the company's income statement for the month using absorption costing Cost of goods sold 0

Explanation / Answer

Variable costing Product cost 1st month 2nd month Direct material 1.04 1.04 Direct labor 1.25 1.25 Variable manufacturing overhead 0.39 0.39 Variable manufacturing cost 2.68 2.68 Units manufactured 62200 62200 Units sold 50,200 74,200 Income statement Sales revenue 291160 430360 Less Variable expense Variable manufacturing cost 134536 198856 Variable marketing and admin expense 39156 57876 Total variable expense 173692 256732 Contribution margin 117468 173628 Less Fixed cost Fixed manufacturing expense 121290 121290 Fixed Marketing and Admin expense 15060 15060 Total fixed expenses 136350 136350 Net operating income -18882 37278 Absorption costing Product cost Direct material 1.04 1.04 Direct labor 1.25 1.25 Variable manufacturing overhead 0.39 0.39 Fixed manufacturing (121290/62200) 1.95 1.95 Total product cost 4.63 4.63 Units produced 62200 62200 Units sold 50,200 74,200 Income statement Sales revenue 291160 430360 cost of goods sold Beginning inventory 0 55560 cost of goods manufactured 287986 287986 Add Goods available for sale 287986 343546 Ending inventory 55560 0 Less Cost of goods sold 232426 343546 Gross profit 58734 86814 Selling and admin expenses Less Variable marketing and admin expense 39156 57876 Fixed marketing and selling expense 15060 15060 Total Selling and admin expenses 54216 72936 Net operating income 4518 13878 3 Reconciliation Net operating income variable costing -18882 37278 Add Ending inventory Fixed manufacturing(1.95*12000) 23400 -23400 Net operating income absorption costing 4518 13878

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