Solution-Explain why the income was different each month

Explain why the income was different each month

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Reference no: EM13492817

Question

Super Product Ltd prepares monthly income statements. Data relating to the months of March and April 2012 are given below:

	March 2012	April 2012
Beginning Inventory	Nil	150 Units
Production	500 Units	400 Units
Sales	350 Units	520 Units
Variable Cost Data:
Manufacturing cost per unit produced	$100	$100
Operating Cost (Non-manufacturing Costs) per unit sold	$30	$30

Fixed Cost Data:
Manufacturing Costs	$20 000
Operating Costs (Non-manufacturing Costs)	$6 000
Selling Price per unit	$240
Stocks are valued on First In First Out (FIFO) basis.

Required:

a. Compute operating profit for March and April 2012 using absorption costing.

b. Compute operating profit for March and April 2012 using variable costing.

c. Reconcile and explain why the income was different each month using the two methods. Show computations.

d. Assume that the performance of the top manager is evaluated and rewarded largely on the basis of reported profit. Which costing method would the manager prefer? Why?

Reference no: EM13492817

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Explain why the income was different each month

Reference no: EM13492817

Reference no: EM13492817

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