Maher Corporation, which has only one product, has provided the following data concerning its most recent month of operations: Selling price $ 187 Units in beginning inventory 0 Units produced 3,440 Units sold 3,180 Units in ending inventory 260 Variable costs per unit: Direct materials $ 49 Direct labor $ 53 Variable manufacturing overhead $ 8 Variable selling and administrative expense $ 19 Fixed costs: Fixed manufacturing overhead $ 113,520 Fixed selling and administrative $ 9,540

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 statement for the month using absorption costing.
e. Reconcile the variable costing and absorption costing net operating incomes for the month.

Solution and Explanation:

1. assuming the firm using the varibale costing

Calculation of unit cost under variable costing

Direct material = 49

Direct labor = 53

Variable manufacturing overhead = 8

UNIT PRODUCT COST = 110

2. Assuming company using absorption costing

Calculation of unit cost under absorption costing

Direct material = 49

Direct labor = 53

Variable manufacturing overhead = 8

Fixed manufacturing overhead ( 113250 divide 3440) = 33

UNIT PRODUCT COST = 143

                                     Variable costing income statement

Sales                                                                                                  594660

Less: variable expense

variable COGS                                           349800

Variable seeling expense                            60420

Total variable expense                                                                        410220

Total contribution margin                                                                      184440

Less: fixed expense

Fixed manufacturing overhead                    113520

Fixed selling and admin exp                          9540

Total fixd expense                                                                                  123060

Net opertaing income (Loss)                                                                   61380

                       Income statement under absorption costing

Sales                                                                       594660

COGS                                                                      454740

Gross margin                                                           139920

Selling and admin expense

Variable = 60420

Fixed = 9540

net operating income                                              69960

              recncociliation of varibale costing and absorption costing net operating income

Variable costing net operating income                                             61380

Add: Fixd manufacturing overheads defered in inventory under absorption costing                                                                                                 8580

Absorption costing Net operating income (Loss)                            69960

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