Blue Mountain Products manufactures and sells a variety of camping products. Recently the company opened a new plant to manufacture a light-weight, self-standing tent. Cost and sales data for the month of operations are shown below.
|
Manufacturing costs: |
$200,000 |
|
Fixed overhead |
$4 per tent |
|
Variable overhead |
$16 per tent |
|
Direct labor |
$40 per tent |
|
Direct materials |
0 tents |
|
Beginning inventory |
10,000 |
|
Tents produced |
9,000 |
|
Tents sold |
Selling and administrative costs:
|
Fixed |
$400,000 |
|
Variable |
$6 per tent sold |
The tent sells for $150. Management is interested in the opening month’s results and has asked for an income statement.
Instructions:
(a) Assuming the company uses absorption costing, do the following. (i) Calculate the manufacturing cost per unit. (ii) Prepare an absorption costing income statement for the month of June 2005.
(b) Assuming the company uses variable costing, do the following. (i) Calculate the manufacturing cost per unit. (ii) Prepare a variable costing income statement for the month of June 2005.
(c) Reconcile the difference in net income between the two methods.