EXERCISE 5A-1 Super-Variable Costing Income Statement [LO 5-6 Zola Company manuf
ID: 2541413 • Letter: E
Question
EXERCISE 5A-1 Super-Variable Costing Income Statement [LO 5-6 Zola Company manufactures and sells one product. The following information pertains to the company's first year of operations: Varlable cost per unit: $18 Flxed costs per year Direct labor Fixed manufacturing overheacd Flxed selling and administrative expenses $200,000 $250,000 $80,000 The company does not incur any variable manufacturing overhead costs or variable selling and administrative expenses. During its first year of operations, Zola produced 25,000 units and sold 20,000 units. The selling price of the company's product is $50 per unit. Required 1. Assume the company uses super-variable costing: a. Compute the unit product cost for the year. b. Prepare an income statement for the year.Explanation / Answer
1. What is Super Variable Costing?
Super Variable Costing: Super variable costing considers only direct materials as variable costs. It treats the direct labour and other manufacturing overhead as fixed costs.
Variable costing method considers both direct material and direct labour as variable costs and both are taken for calculating cost per unit.
But as per Super Variable costing, only direct material is taken for calculating Cost per unit.
2. How to calculate cost per unit and prepare income statement under Super Variable Costing?
Step 1. Cost per unit = Direct Material Per unit
Step 2. Super Variable Costing – Contribution Margin Income Statement
Sales
xxxx
Less: Cost of Goods sold(only direct material)
Opening stock
xxxx
Add: cost of goods manufactured
xxxx
xxxx
Less: Closing stock
xxxx
xxxx
Contribution Margin
xxxx
Less: Fixed Expenses
Direct Labour
xxxx
Fixed Manufacturing Overhead
xxxx
Fixed Selling and administrative expenses
xxxx
xxxx
Net Operating Income
xxxx
Now we will move to the question:
Information in the question
Zola Company
Variable cost per unit
Direct materials
$18
Fixed costs per year:
Direct labour
$200,000
Fixed manufacturing overhead
$250,000
Fixed selling and administrative expenses
$80,000
Units produced
25,000
Units sold
20,000
Selling price
$50 per unit
Question 1: Compute the unit product cost for the year under Super Variable Costing
Under Super variable costing
Cost per unit = Direct material per unit
= $ 18
Question 2: Prepare an income statement for the year under Super Variable Costing
Super Variable Costing – Contribution Margin Income Statement
Sales (20,000 units x $50)
1,000,000
Less: Cost of Goods sold(only direct material)
Opening stock
Nil
Add: cost of goods manufactured(25,000 units x $ 18)
450,000
450,000
Less: Closing stock(5,000 units x $18)
90,000
360,000
Contribution Margin
640,000
Less: Fixed Expenses
Direct Labour
200,000
Fixed Manufacturing Overhead
250,000
Fixed Selling and administrative expenses
80,000
530,000
Net Operating Income
110,000
Sales
xxxx
Less: Cost of Goods sold(only direct material)
Opening stock
xxxx
Add: cost of goods manufactured
xxxx
xxxx
Less: Closing stock
xxxx
xxxx
Contribution Margin
xxxx
Less: Fixed Expenses
Direct Labour
xxxx
Fixed Manufacturing Overhead
xxxx
Fixed Selling and administrative expenses
xxxx
xxxx
Net Operating Income
xxxx
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