Question

Nelter Corporation, which has only one product, has provided the following data concerning its most recent month of operations: Selling price $ 130 Units in beginning inventory 320 Units produced 6,670 Units sold 6,780 Units in ending inventory 210 Variable costs per unit: Direct materials $ 42 Direct labor $ 26 Variable manufacturing overhead $ 2 Variable selling and administrative expense $ 20 Fixed costs: Fixed manufacturing overhead $ 160,080 Fixed selling and administrative expense $ 88,140 The 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

a. Prepare a contribution format income statement for the month using variable costing

Sales (6780*130)		881400
Less: Variable cost
Variable cost of goods sold (6780*70)	474600
Variable selling and administrative expense (6780*20)	135600
Total Variable cost		610200
Contribution margin		271200
Fixed cost
Fixed manufacturing overhead	160080
Fixed selling and administrative expense	88140
Total fixed cost		248220
NEt operating income		22980

b. Prepare an income statement for the month using absorption costing.

Sales (130*6780)	881400
Less: Cost of goods sold (6780*94)	637320
Gross profit	244080
Less:Selling and administrative expense (6780*20+88140)	223740
Net operating income	20340