Question

Nelter Corporation, which has only one product, has provided the following data concerning its most recent month of operations:Selling price $ 122Units in beginning inventory 290Units produced 6,600Units sold 6,590Units in ending inventory 300Variable costs per unit:Direct materials $ 42Direct labor $ 26Variable manufacturing overhead $ 2Variable selling and administrative expense $ 21Fixed costs:Fixed manufacturing overhead $ 151,800Fixed selling and administrative expense $ 46,130The company produces the same number of units every month, although the sales in units vary from month to month. The company's variable costs per unit and total fixed costs have been constant from month to month.Required:a. Prepare a contribution format income statement for the month using variable costing.b. Prepare an income statement for the month using absorption costing.

Answer 1

Answer:

Part a

Nelter Corporation

Contribution format income statement for the month using variable costing

Sales ($ 122 x 6,590)                                                           $803,980

Less Cost of Goods Sold

Beginning Inventory                                          $20,300

Add Cost of Goods Manufactured                 $462,000

Less Ending Inventory                                      ($21,000)    ($461,300)

Contribution                                                                           $342,680

Less Expenses

Selling and administrative expense :

Variable  ($21 x 6,590)                                    $138,390

Fixed                                                                   $46,130

Fixed manufacturing overhead                      $ 151,800     ($336,320)

Net Income (Loss)                                                                      $6,360

Part b

Nelter Corporation

Income statement for the month using absorption costing

Sales ($ 122 x 6,590)                                                           $803,980

Less Cost of Goods Sold

Beginning Inventory                                          $26,970

Add Cost of Goods Manufactured                  $613,800

Less Ending Inventory                                     ($27,900)    ($612,870)

Gross Profit                                                                              $191,110

Less Expenses

Selling and administrative expense :

Variable  ($21 x 6,590)                                    $138,390

Fixed                                                                   $46,130    ($184,520)

Net Income (Loss)                                                                    $6,590

Explanation:

Variable Costing Calculations

Unit Product Cost = Variable Manufacturing Costs

                              = $ 42 + $ 26 + $ 2

                              = $ 70

Cost of Goods Manufactured = 6,600 x $ 70 = $462,000

Opening Inventory = 290 x $ 70 = $20,300

Ending Inventory =  300 x $70 = $21,000

Absorption Costing Calculations

Unit Product Cost = Variable Manufacturing Costs

                              = $ 42 + $ 26 + $ 2 + ($ 151,800 ÷ 6,600)

                              = $ 42 + $ 26 + $ 2 + $23

                              = $93

Cost of Goods Manufactured = 6,600 x $93 = $613,800

Opening Inventory = 290 x $93 = $26,970

Ending Inventory =  300 x $93 = $27,900