Question

Coverall Inc. produces and sells a unique type of case for a standard size tablet computer that is guaranteed waterproof but still allows for regular functionality of the tablet. The company has just opened a new plant to manufacture these cases, and the following cost and revenue data have been provided for the first month of the plant’s operation in the form of a worksheet:

Beginning inventory		0
Units produced		40,000
Units sold		30,000
Selling price per unit	$	91
Selling and administrative expenses:
Variable per unit	$	11
Fixed (total)	$	570,000
Manufacturing costs:
Direct materials cost per unit	$	23
Direct labour cost per unit	$	16
Variable manufacturing overhead cost per unit	$	7
Fixed manufacturing overhead cost (total)	$	760,000

     Since the new case 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.

b.

Prepare an income statement for the month.

Sales		$2,730,000
Cost of goods sold:
Goods available for sale
	0
Less: Ending inventory		0
Gross margin		2,730,000
Selling and administrative expenses
Operating loss		$2,730,000

2.	Assume that the company uses variable costing.

a.	Determine the unit product cost.

b.

Prepare a contribution format income statement for the month.

Variable expenses:
Variable cost of goods sold:
Fixed expenses:

Answer 1

Answer 1-a.

Unit Product Cost = Direct Materials Cost per unit + Direct Labor Cost per unit + Variable Manufacturing Overhead per unit + Fixed Manufacturing Overhead per unit
Unit Product Cost = $23 + $16 + $7 + $760,000/40,000
Unit Product Cost = $65

Answer 1-b.

Answer 2-a.

Unit Product Cost = Direct Materials Cost per unit + Direct Labor Cost per unit + Variable Manufacturing Overhead per unit
Unit Product Cost = $23 + $16 + $7
Unit Product Cost = $46

Answer 2-b.