The company recently announced a new plan

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Reference no: EM13916492

Absorption & Variable Costing

A BBQ manufacturer makes and sells BBQ's and accessories. The company recently announced a new plan to manufacture a dual purpose propane/charcoal BBQ conversion kit. Cost and sales data for the first month of operations April 2017 are as follows:

Manufacturing Costs

Fixed overhead	$200,000
Variable overhead	$4 per kit
Direct labour	$16 per kit
Direct material	$40 per kit
Beginning inventory	0 kits
Kits produced	10,000
Kits sold	9,000
Selling and administrative costs
Fixed	$400,000
Variable	$6 per kit sold

The conversion kit sells for $150. Management is interested in the opening month's results and has asked for an income statement.

Required:

a) Assume the company uses absorption costing:

1. Calculate the manufacturing cost per unit

2. Prepare an absorption--costing income statement for the month of April 2017

b) Assume the company uses variable costing:

1. calculate the variable manufacturing cost per unit

2. prepare a variable--costing income statement for the month of April 2017

c) Reconcile the difference in net income between the absorption and variable costing methods.

Reference no: EM13916492

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