Reference no: EM132610517

Lesley Company which has just started its operation and has only one product, hired you as management consultant to help them evaluate their operations. The CEO is quite confused with absorption costing and variable costing and which to base their future decisions. Their bookkeeper has provided the following data concerning its most recent month of operations:

Selling price........................................................P143

Units in beginning inventory..............................0

Units produced...................................................1,200

Units sold..............................................................1,000

Units in ending inventory.................................200

Variable costs per unit:

Direct materials..................................................P33

Direct labor...........................................................P52

Variable manufacturing overhead...............P1

Variable selling and administrative.............P7

Fixed costs:

Fixed manufacturing overhead.....................P38,400

Fixed selling and administrative....................P4,000

Question 1: Prepare income statement for the month using the contribution format and the variable costing method.

Question 2: Prepare income statement for the month using the absorption costing method.

Question 3: Cite the advantages and disadvantages of variable costing method and which method should the company use if they want to know how many units they should sell next period to achieve their target profit? Address and explain this to the management of Lesley Company.