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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.
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