Answer:
<u>Part a</u>
Nelter Corporation
Contribution format income statement for the month using variable costing
Sales ($108 x 3,000) $324,000
Less Cost of Sales ($138,000)
Contribution $186,000
Less Expenses
Fixed manufacturing overhead $64,530
Fixed selling and administrative $9,000
Variable selling and administrative (14 x 3,000) $42,000 ($115,530)
Net Income (loss) $70,470
<u>Part b</u>
Nelter Corporation
Income statement for the month using absorption costing
Sales ($108 x 3,000) $324,000
Less Cost of Sales ($219,000)
Gross Profit $105,000
Less Expenses
Fixed selling and administrative $9,000
Variable selling and administrative (14 x 3,000) $42,000 ($51,000)
Net Income (loss) $54,000
Explanation:
<u>Calculation of Ending Units</u>
Beginning Inventory 955
Add Production 2,390
Total Available for Sale 3,345
Less Sales (3000)
Ending Inventory 345
<u>Variable Costs Calculations</u>
Product Cost = Variable Manufacturing costs
= $25 + $20 + $1
= $46
Cost of Sales = units sold x product cost
= 3,000 x $46
= $138,000
<u>Absorption Cost Calculation</u>
Product Cost = Variable Manufacturing costs
= $25 + $20 + $1 + ($64,530 / 2,390)
= $25 + 20 + $ 1 + $27
= $73
Cost of Sales = units sold x product cost
= 3,000 x $73
= $219,000
