Absorption & Variable Costing
A BBQ manufacturer makes and sells BBQ's and accessories. The company recently announced a new plan to manufacture a dual purpose propane/charcoal BBQ conversion kit. Cost and sales data for the first month of operations April 2017 are as follows:
Manufacturing Costs
|
Fixed overhead
|
$200,000
|
|
Variable overhead
|
$4 per kit
|
|
Direct labour
|
$16 per kit
|
|
Direct material
|
$40 per kit
|
|
Beginning inventory
|
0 kits
|
|
Kits produced
|
10,000
|
|
Kits sold
|
9,000
|
|
Selling and administrative costs
|
|
Fixed
|
$400,000
|
|
Variable
|
$6 per kit sold
|
The conversion kit sells for $150. Management is interested in the opening month's results and has asked for an income statement.
Required:
a) Assume the company uses absorption costing:
1. Calculate the manufacturing cost per unit
2. Prepare an absorption--costing income statement for the month of April 2017
b) Assume the company uses variable costing:
1. calculate the variable manufacturing cost per unit
2. prepare a variable--costing income statement for the month of April 2017
c) Reconcile the difference in net income between the absorption and variable costing methods.