Question

Pacheo Corporation, which has only one product, has provided the following data concerning its most recent month of operations:

Selling price	$	108
Units in beginning inventory		770
Units produced		2,400
Units sold		2,850
Units in ending inventory		320
Variable costs per unit:
Direct materials	$	23
Direct labor	$	24
Variable manufacturing overhead	$	2
Variable selling and administrative expense	$	11
Fixed costs:
Fixed manufacturing overhead	$	57,600
Fixed selling and administrative expense	$	5,700

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. What is the unit product cost for the month under variable costing?

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

c. Without preparing an income statement, determine the absorption costing net operating income for the month. (Hint: Use the reconciliation method.)

Answer 1

a) Unit product cost for variable costing

Direct material	23
Direct labor	24
Variable manufacturing overhead	2
Unit product cost	49

b) Contribution margin income statement

Sales (2850*108)		307800
Less: Variable cost of goods sold (2850*49)		139650
Manufacturing margin		168150
Less: Variable selling and administrative (2850*11)		31350
Contribution margin		136800
Fixed cost
Fixed manufacturing overhead	57600
Fixed selling and administrative expense	5700
Total fixed cost		63300
Net income		73500

3) Income statement

Sales (2850*108)	307800
Cost of goods sold (2850*73)	208050
Gross profit	99750
Selling and administrative expense (2850*11+5700)	37050
Net income	62700