Managerial Accounting: P7-14 Joan Tyler started a small manufacturing co

Managerial Accounting

P7-14 Absorption and Variable Costing
Joan Tyler started a small manufacturing co. JT Enterprises, at the beginning of 2005. Joan has prepared the following income statement for the first quarter of operations.
JT Enterprises
Income Statement
For the Quarter Ending March 31, 2005
Sales revenue (25,000 units) 1,200,000 48.00
Less Variable costs:
Variable cost of good sold 540,000 21.60
Variable selling and administrative expenses 260,000 800,000 10.40
Contribution margin 400,000
Less Fixed Costs:
Fixed manufacturing overhead 300,000 10.00
Fixed selling and administrative expenses 150,000 450,000 6.00
Net loss $(50,000)

The variable cost of goods sold includes the cost of direct materials, direct labor, and variable manufacturing overhead. The company began the quarter with no inventory; it manufactured 30,000 units over the period. Variable selling and administrative expenses are base on units sold.
A. Calculate the unit product cost using absorption costing.
B. Rework the income statement using absorption costing.
C. Does the net loss figure change using absorption costing? If yes, explain why.
D. During the second quarter of operations, JT again manufactured 30,000 units but sold 35,000 units. Prepare income statement for the second quarter using both variable and absorption costing methods.
E. Explain the difference in net income (or loss) in the second quarter between the two statements prepared in requirement (D).
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