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solong [7]
3 years ago
5

Mahugh Corporation, which has only one product, has provided the following data concerning its most recent month of operations:

Business
1 answer:
Anna11 [10]3 years ago
7 0

Answer:

a. $77

b. $101

c.Income statement for the month using the contribution format and the variable costing method.

Sales ( $122 × 8,200)                                                                       1,000,400

Less Cost of Sales

Opening Stock                                                                      0

Add Cost of Goods Manufactured (8,300× $77)           639,100

Less Closing stock ( 100 × $77)                                        (7,700)    (631,400)

Contribution                                                                                       369,000

Less Expenses

Fixed manufacturing overhead                                                      ($199,200)

Variable selling and administrative ($7×8,200)                                (57,400)

Fixed selling and administrative                                                    ($106,600)

Net Income / (Loss)                                                                                5,800

d.Income statement for the month using the absorption costing method.

Sales ( $122 × 8,200)                                                                       1,000,400

Less Cost of Sales

Opening Stock                                                                      0

Add Cost of Goods Manufactured (8,300× $101)           838,300

Less Closing stock ( 100 × $101)                                        (10,100) (828,200)

Contribution                                                                                       172,200

Less Expenses

Variable selling and administrative ($7×8,200)                                (57,400)

Fixed selling and administrative                                                    ($106,600)

Net Income / (Loss)                                                                                8,200

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

Absorption Costing Net Profit                                                               8,200

Add Fixed Costs in Opening Stock                                                           0

Less Fixed Costs in Closing Stock (100 × $24)                                   (2,400)

Variable Costing Net Profit                                                                    5,800

Explanation:

Product Cost (Variable Costing) = All Variable Manufacturing Costs

                                                     = $27 + $46 + $4

                                                     = $77

Product Cost (Absorption Costing) = All Variable Manufacturing Costs + All Fixed Manufacturing Costs

                                                          = $77 + ($199,200/8,300)

                                                          = $77 + $24

                                                          = $101

Income Statements

Non Manufacturing Costs are treated as a Periodic Cost in Absorption Costing Income Statement

Whilst Both Fixed Manufacturing Costs and Non Manufacturing Costs are treated as a Periodic Cost in Variable Costing Income Statement.

Reconciliation

The difference in Profit is due to Fixed Cost component absorbed in Absorption Costing.

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On June 30, 2021, the Esquire Company sold some merchandise to a customer for $68,000. In payment, Esquire agreed to accept a 9%
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2021 understated by $3,060

2022 overstated by $3,060

Explanation:

<u>June 30, 2021</u>

                                        DEBIT          CREDIT

Note receivable            $68,000

Sales                                                    $68,000

<u>Dec 31, 2021</u> (July 1, 2021 to Dec 31 2021)

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Interest receivable       $3060

Interest Income                                   $3060

Working = 68,000 x 9% x6/12 = $3060

<u>March 31, 2022</u>  

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Cash                             72,590  

Interest receivable                              3,060

Interest income                                    1,530

Note Receivable                                   68,000

Working = 68000 x 9% x 3/12 =          1,530

2021 income will be understated by $3,060 if adjusting entry is not prepared and revenue is not recognized

2022 income will be overstated by $3,060

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