Nicky's Entrees produces frozen meals, which it sells for $9 each. The company uses the FIFO inventory costing method, and it computes a new monthly fixed manufacturing overhead rate based on the actual number of meals produced that month. All costs and production levels are exactly as planned. The following data are from the company's first two months in business: January February Sales 1,200 Meals 1,600 Meals Production 1,600 Meals 1,500 Meals Variable manufacturing expense per meal $3 $3 Sales commission expense per meal $1 $1 Total fixed manufacturing overhead $1,200 $1,200 Total fixed marketing and administrative expenses $800 $800 Requirements 1. Compute the product cost per meal produced under absorption costing and under variable costing. Do this first for January and then for February. 2. Prepare separate monthly income statements for January and for February, using the following: a. Absorption costing b. Variable costing. Requirement 1. Compute the product cost per meal produced under absorption costing and under variable costing. Do this first for January and then for February. January February Absorption Costing Variable Costing Absorption Costing Variable Costing Total product cost Requirement 2a. Prepare separate monthly income statements for January and for February, using absorption costing. Nicky's Entrees Income Statement (Absorption Costing) Month Ended January 31 February 28 Sales revenue Less: Cost of goods sold Gross profit Less: Operating Expenses Operating income Requirement 2b. Prepare Nicky's Entrees' January and February income statements using variable costing. Nicky's Entrees Contribution Margin Income Statement (Variable Costing) Month Ended January 31 February 28 Sales revenue Less: Variable Expenses Variable cost of goods sold Variable operating expenses Contribution margin Less: Fixed Expenses Fixed manufacturing overhead Fixed operating expenses Operating income

Nicky's Entrees produces frozen meals, which it sells for $9 each. The company uses the FIFO inventory costing method, and it computes a new monthly fixed manufacturing overhead rate based on the actual number of meals produced that month. All costs and production levels are exactly as planned. The following data are from the company's first two months in business: January February Sales 1,200 Meals 1,600 Meals Production 1,600 Meals 1,500 Meals Variable manufacturing expense per meal $3 $3 Sales commission expense per meal $1 $1 Total fixed manufacturing overhead $1,200 $1,200 Total fixed marketing and administrative expenses $800 $800 Requirements 1. Compute the product cost per meal produced under absorption costing and under variable costing. Do this first for January and then for February. 2. Prepare separate monthly income statements for January and for February, using the following: a. Absorption costing b. Variable costing. Requirement 1. Compute the product cost per meal produced under absorption costing and under variable costing. Do this first for January and then for February. January February Absorption Costing Variable Costing Absorption Costing Variable Costing Total product cost Requirement 2a. Prepare separate monthly income statements for January and for February, using absorption costing. Nicky's Entrees Income Statement (Absorption Costing) Month Ended January 31 February 28 Sales revenue Less: Cost of goods sold Gross profit Less: Operating Expenses Operating income Requirement 2b. Prepare Nicky's Entrees' January and February income statements using variable costing. Nicky's Entrees Contribution Margin Income Statement (Variable Costing) Month Ended January 31 February 28 Sales revenue Less: Variable Expenses Variable cost of goods sold Variable operating expenses Contribution margin Less: Fixed Expenses Fixed manufacturing overhead Fixed operating expenses Operating income

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

	January	February
Sales	1,200 Meals	1,600 Meals
Production	1,600 Meals	1,500 Meals
Variable manufacturing expense per meal	$3	$3
Sales commission expense per meal	$1	$1
Total fixed manufacturing overhead	$1,200	$1,200
Total fixed marketing and administrative expenses	$800	$800

Requirements

1.	Compute the product cost per meal produced under absorption costing and under variable costing. Do this first for January and then for February.
2.	Prepare separate monthly income statements for January and for February, using the following: a. Absorption costing b. Variable costing.

Requirement 1. Compute the product cost per meal produced under absorption costing and under variable costing. Do this first for January and then for February.

	January		February
	Absorption Costing	Variable Costing	Absorption Costing	Variable Costing
Total product cost

Requirement 2a. Prepare separate monthly income statements for January and for February, using absorption costing.

Nicky's Entrees

Income Statement (Absorption Costing)

Month Ended

	January 31	February 28
Sales revenue
Less: Cost of goods sold
Gross profit
Less: Operating Expenses
Operating income

Requirement 2b. Prepare Nicky's Entrees' January and February income statements using variable costing.

Nicky's Entrees

Contribution Margin Income Statement (Variable Costing)

Month Ended

	January 31	February 28
Sales revenue
Less: Variable Expenses
Variable cost of goods sold
Variable operating expenses
Contribution margin
Less: Fixed Expenses
Fixed manufacturing overhead
Fixed operating expenses
Operating income

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