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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