Reference no: EM132510338

Alta Products Ltd. has just created a new division to manufacture and sell DVD players. The facility is highly automated and thus has high monthly fixed costs, as shown in the following schedule of budgeted monthly costs. This schedule was prepared based on an expected monthly production volume of 2,000 units.

Manufacturing costs
Variable costs per unit

Direct materials                                         $28
Direct labour                                               42
Variable overhead                                         10
Total fixed overhead                                  70,000
Selling and administrative costs
Variable                                                   6 % of sales
Fixed                                                         $46,000

During August 2020, the following activity was recorded:

Units produced                   2,000
Units sold                          1,510
Selling price per unit        $175

Assume the company uses normal costing and uses the budgeted volume of 2,500 units to allocate the fixed overhead rate rather than the actual production volume of 2,000 units. The company expenses production volume variance to cost of goods sold in the accounting period in which it occurs. Do the following:

Question 1: Calculate the manufacturing cost per unit.

Question 2: Prepare a normal-costing income statement for the month ended August 31, 2020.

Question 3: Reconcile the difference in net income between the absorption-costing and normal-costing methods. (Round per unit calculations to 2 decimal places, e.g. 15.25 and final answers to 0 decimal places, e.g. 125.)