Leander Office Products Inc. produces and sells small storage and organizational products for office use. During the first month operations, the products sold well. Andrea Leander, the owner of the company, was surprised to see a loss for the month on he income statement. This statement was prepared by a local bookkeeping service recommended to her by her bank manager. Th statement follows: LEANDER OFFICE PRODUCTS INC. Income Statement Sales (43,000 units) Variable expenses: Variable cost of goods sold* Variable selling and administrative expenses Contribution margin Fixed expenses: Fixed manufacturing overhead Fixed selling and administrative expenses Operating loss $253,700 $116,530 49,880 166,410 87,290 89,586 17,200 106,786 $(19,496) *Consists of direct materials, direct labour, and variable manufacturing overhead. Leander is discouraged over the loss shown for the month, particularly since she had planned to use the statement to encourag investors to purchase shares in the new company. A friend who is an accountant insists that the company should be using abso costing rather than variable costing. He argues that if absorption costing had been used, the company would probably have rep profit for the month. Selected cost data relating to the product and to the first month of operations follow: Units produced Units sold 56,700 43,000 Variable costs per unit: Direct materials Direct labour Variable manufacturing overhead $ 1.25 Variable selling and administrative expenses $ 1.22 $ 0.24 $ 1.16 1. Complete the following: a. Compute the unit product cost under absorption costing. (Round your answer to 2 decimal places.)
Leander Office Products Inc. produces and sells small storage and organizational products for office use. During the first month operations, the products sold well. Andrea Leander, the owner of the company, was surprised to see a loss for the month on he income statement. This statement was prepared by a local bookkeeping service recommended to her by her bank manager. Th statement follows: LEANDER OFFICE PRODUCTS INC. Income Statement Sales (43,000 units) Variable expenses: Variable cost of goods sold* Variable selling and administrative expenses Contribution margin Fixed expenses: Fixed manufacturing overhead Fixed selling and administrative expenses Operating loss $253,700 $116,530 49,880 166,410 87,290 89,586 17,200 106,786 $(19,496) *Consists of direct materials, direct labour, and variable manufacturing overhead. Leander is discouraged over the loss shown for the month, particularly since she had planned to use the statement to encourag investors to purchase shares in the new company. A friend who is an accountant insists that the company should be using abso costing rather than variable costing. He argues that if absorption costing had been used, the company would probably have rep profit for the month. Selected cost data relating to the product and to the first month of operations follow: Units produced Units sold 56,700 43,000 Variable costs per unit: Direct materials Direct labour Variable manufacturing overhead $ 1.25 Variable selling and administrative expenses $ 1.22 $ 0.24 $ 1.16 1. Complete the following: a. Compute the unit product cost under absorption costing. (Round your answer to 2 decimal places.)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Leander Office Products Inc. produces and sells small storage and organizational products for office use. During the first month of
operations, the products sold well. Andrea Leander, the owner of the company, was surprised to see a loss for the month on her
income statement. This statement was prepared by a local bookkeeping service recommended to her by her bank manager. The
statement follows:
LEANDER OFFICE PRODUCTS INC.
Income Statement
Sales (43,000 units)
Variable expenses:
Variable cost of goods sold✶
Variable selling and administrative expenses
Contribution margin
Fixed expenses:
Fixed manufacturing overhead
Fixed selling and administrative expenses
Operating loss
$253,700
$116,530
49,880
166,410
87,290
89,586
17,200
106,786
$(19,496)
*Consists of direct materials, direct labour, and variable manufacturing overhead.
Leander is discouraged over the loss shown for the month, particularly since she had planned to use the statement to encourage
investors to purchase shares in the new company. A friend who is an accountant insists that the company should be using absorption
costing rather than variable costing. He argues that if absorption costing had been used, the company would probably have reported a
profit for the month.
Selected cost data relating to the product and to the first month of operations follow:
Units produced
Units sold
Variable costs per unit:
Direct materials
Direct labour
Variable manufacturing overhead
Variable selling and administrative expenses
56,700
43,000
$ 1.25
$ 1.22
$ 0.24
$
1.16
1. Complete the following:
a. Compute the unit product cost under absorption costing. (Round your answer to 2 decimal places.)
Unit product cost
b. Redo the company's income statement for the month using absorption costing. (Do not leave any empty spaces; input a 0
wherever it is required.)
Cost of goods sold:
c. Reconcile the variable and absorption costing operating income (loss) figures. (Loss amounts should be entered with a minus
sign.)
Variable costing operating income (loss)
Add: Fixed manufacturing overhead cost deferred in inventory under absorption costing
Absorption costing operating income (loss)
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