Question

McCracken Aerial, Inc., produces and sells a unique type of TV antenna. The company has just opened a new plant to manufacture the antenna, and the following cost and revenue data have been provided for the first month of the plant’s operation:

Beginning inventory		0
Units produced		46,750
Units sold		41,000
Selling price per unit	$	78
Selling and administrative expenses:
Variable per unit	$	5
Fixed (total)	$	543,000
Manufacturing costs
Direct materials cost per unit	$	15.6
Direct labor cost per unit	$	7.8
Variable manufacturing overhead cost per unit	$	1
Fixed manufacturing overhead cost (total)	$	888,250

    Because the new antenna is unique in design, management is anxious to see how profitable it will be and has asked that an income statement be prepared for the month.

   

Required:

1.	Assume that the company uses absorption costing.

  

a.	Determine the unit product cost. (Do not round intermediate calculations and round your final answer to 1 decimal place.)

  

b.

Prepare an income statement for the month.

2.	Assume that the company uses variable costing.

   

a.	Determine the unit product cost. (Do not round intermediate calculations and round your final answer to 1 decimal place.)

  

b.	Prepare a contribution format income statement for the month.

Answer 1

1.a	Computation of unit product cost
	Direct materials	$15.60
	Direct labor	$7.80
	Variable manufacturing overhead	$1.00
	Fixed manufacturing overhead($888,250/46,750 units)	$19.00
	Unit product cost	$43.40
2.a	Computation of unit product cost
	Direct materials	$15.60
	Direct labor	$7.80
	Variable manufacturing overhead	$1.00
	Unit product cost	$24.40
2.b	Contribution Income Statement under Variable costing
	Sales(41,000 units*$78)		$31,98,000
	Less:Variable cost:
	Manufacturing variable cost($24.40*46,750)	$11,40,700
	Selling variable cost($5*41,000)	$2,05,000	$13,45,700
	Contribution margin		$18,52,300
	Less:Fixed costs($543,000 + $888,250)		$14,31,250
	Net Operating income/(loss)		$4,21,050