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10 December, 10:08

The EG Company produces and sells one product. The following data refer to the year just completed: Beginning Inventory 0 units Units produced ... 25,000 Units sold ... 20,000 Sales price per unit ... $400 Variable selling and administrative expenses per unit $ 15 Fixed Selling and administrative expenses (Total) $275,000 Manufacturing Costs: Direct materials cost per unit ... $ 200 Direct labor cost per unit ... $ 50 Variable manufacturing overhead cost per unit ... $ 30 Fixed manufacturing overhead (Total) ... $300,000 Required: 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 year using variable costing. d. Prepare an income statement for the year using absorption costing.

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  1. 10 December, 10:47
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    Part a. What is the unit product cost for the month under variable costing?

    Direct Materials 200

    Direct Labor 50

    Variable Manufacturing Overhead 30

    Unit product cost 280

    Therefore Unit Product cost is $280

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

    Direct Materials 200

    Direct Labor 50

    Variable Manufacturing Overhead 30

    Fixed Manufacturing Overheads (300,000/25000) 12

    Unit product cost 292

    Therefore Unit Product cost is $292

    Part c. Prepare a contribution format income statement for the year using variable costing.

    Sales (20,000 * $400) 8,000,000

    Less Cost of Sales (5,600,000)

    Opening Stock 0

    Add Cost of Goods Manufactured (25,000 * $280) 7,000,000

    Less Closing Stock (5,000*$280) (1,400,000)

    Contribution 2,400,000

    Less Expenses:

    Fixed Manufacturing Costs 300,000

    Variable Selling and Administrative Expenses (20,000*$15) 300,000

    Fixed Selling and Administrative Expenses 275,000

    Net Income 1,525,000

    Part d. Prepare an income statement for the year using absorption costing.

    Sales (20,000 * $400) 8,000,000

    Less Cost of Sales (5,840,000)

    Opening Stock 0

    Add Cost of Goods Manufactured (25,000 * $292) 7,300,000

    Less Closing Stock (5,000*$292) (1,460,000)

    Gross Profit 2,160,000

    Less Expenses:

    Variable Selling and Administrative Expenses (20,000*$15) 300,000

    Fixed Selling and Administrative Expenses 275,000

    Net Income 1,585,000

    Explanation:

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

    Only Variable Manufacturing Costs are included as Product Cost

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

    Both Variable Manufacturing Costs and Fixed Manufacturing Costs are included as Product Cost

    Part c. Prepare a contribution format income statement for the year using variable costing.

    Fixed Manufacturing Costs and Non-Manufacturing Costs are treated as Period Costs

    Part d. Prepare an income statement for the year using absorption costing.

    Only Non-Manufacturing Costs are treated as Period Costs
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