Antennas, Inc, produces and sells a unique television antenna.T opened a new plant to manufacture...

Question:

Antennas, Inc, produces and sells a unique television antenna.T opened a new plant to manufacture the antenna, and the following cost and revenue data have been reported for the first month of the new plant's operation:

Beginning inventory0
Units produced35,000
Units sold30,000
Selling price per unit$50
Selling and administrative expenses
Variable per unit$2
Fixed (total)$360,000
Manufacturing costs:
Direct material cost per unit$9
Direct labor cost per unit$8
Variable manufacturing overhead cost per unit$3
Fixed manufacturing overhead cost (total)$350,000

Management is anxious to see how profitable the new antenna will be and has asked that an income statement be prepared for the month. Assume that direct labor is a variable cost. Required:

a. Assuming that the company uses absorption costing, compute the unit product cost and prepare an income statement.

b. Assuming that the company uses variable costing, compute the unit product cost and prepare an income statement income statement.

Costing Methods:

Costing methods followed as per GAAP guidelines help prepare an income statement. Variable costing income is an internal report which is prepared for management regarding decision making. Under the absorption costing, method fixed overhead is allocated to total units produced but under variable costing it is treated as a period cost. Selling and administrative expense is not included as a product cost but instead a period cost.

Answer and Explanation: 1

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a. The unit product cost under absorption costing is $30.

Prepare income statement under absorption costing as follows: -

Income...

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Contribution Margin vs. Traditional Income Statements

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Chapter 2 / Lesson 10
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Contribution margin income statements subtract variable costs from the total sales, whereas traditional income statements subtract groups of different costs from total sales. Differentiate between these two income statements to see their applications.


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