Only 3 and 4 Advance Products, Inc., has just organized a new division to manufacture and sell specially designed bookshelves using select hardwoods for personal computers. The division’s monthly costs are shown in the schedule below: Manufacturing costs: Variable costs per unit: Direct materials .......................................... $172 Variable manufacturing overhead ............... $8 Fixed manufacturing overhead costs (total) ... $240,000 Selling and administrative costs: Variable .......................................................... 20% of sales Fixed (total) .................................................... $300,000 Advance Products regards all of its workers as full-time employees and the company has a long-standing no-layoff policy. Furthermore, production is highly automated. Accordingly, the company includes its labor costs in its fixed manufacturing overhead. The bookshelf sell for $600 each. During the first month of operations, the following activity was recorded: Units produced ................... 4,000 Units sold ............................ 3,000 1. Compute the unit product cost under: a. Absorption costing. b. Variable costing. 2. Prepare an income statement for the month using absorption costing. 3. Prepare a contribution format income statement for the month using variable costing. 4. Reconcile the absorption costing and variable costing net operating incomes in (2) and (3) above.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Only 3 and 4

Advance Products, Inc., has just organized a new division to manufacture and sell specially designed bookshelves using select hardwoods for personal computers. The division’s monthly costs are shown in the schedule below:

Manufacturing costs:

Variable costs per unit:
Direct materials .......................................... $172
Variable manufacturing overhead ............... $8
Fixed manufacturing overhead costs (total) ... $240,000 Selling and administrative costs:
Variable .......................................................... 20% of sales Fixed (total) .................................................... $300,000

Advance Products regards all of its workers as full-time employees and the company has a long-standing no-layoff policy. Furthermore, production is highly automated. Accordingly, the company includes its labor costs in its fixed manufacturing overhead. The bookshelf sell for $600 each.

During the first month of operations, the following activity was recorded: Units produced ................... 4,000
Units sold ............................ 3,000

1. Compute the unit product cost under:
a. Absorption costing.
b. Variable costing.
2. Prepare an income statement for the month using absorption costing.
3. Prepare a contribution format income statement for the month using variable costing.
4. Reconcile the absorption costing and variable costing net operating incomes in (2) and (3) above.

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