Answer Happy

Problem 8-14 Absorption and Variable Costing; Production Constant, Sales Fluctuate [LO1, LO2, LO3, LO4] Leander Office Products Inc. produces and sells small storage and organizational products for office use. During the first month of operations, the products sold well. Andrea Leander, the owner of the company, was surprised to see a loss for the month on her income statement. This statement was prepared by a local bookkeeping service recommended to her by her bank manager. The statement follows: Sales (45,600 units) Variable expenses: Variable cost of goods sold* Variable selling and administrative expenses Contribution margin Fixed expenses: Fixed manufacturing overhead Fixed selling and administrative expenses Operating loss Units produced Units sold LEANDER OFFICE PRODUCTS INC. Income Statement Variable costs per unit: Direct materials Direct labour Variable manufacturing overhead Variable selling and administrative expenses Unit product cost $119,472 35,112 *Consists of direct materials, direct labour, and variable manufacturing overhead. Leander is discouraged over the loss shown for the month, particularly since she had planned to use the statement to encourage investors to purchase shares in the new company. A friend who is an accountant insists that the company should be using absorption costing rather than variable costing. He argues that if absorption costing had been used, the company would probably have reported a profit for the month. Selected cost data relating to the product and to the first month of operations follow: 4.51 108,864 13, 224 $264,480 154,584 109,896 122,088 $(12,192) 57,600 45,600 Required: 1. Complete the following: a. Compute the unit product cost under absorption costing. (Round your answer to 2 decimal places.) $ 1.20 $ 1.17 $ 0.25 0.77 $
b. Redo the company's income statement for the month using absorption costing. (Do not leave any empty spaces; input a 0 wherever it is required.) Sales Cost of goods sold: Selling and administrative expenses Add: Cost of goods manufactured Goods available for sale Less: Ending inventory Gross margin Selling and administrative expenses 0 $ 0 0 0 c. Reconcile the variable and absorption costing operating income (loss) figures. (Loss amounts should be entered with a minus sign.) Variable costing operating income (loss) Add: Fixed manufacturing overhead cost deferred in inventory under absorption costing Absorption costing operating income (loss) $ 0
2. This part of the question is not part of your Connect assignment. 3. During the second month of operations, the company again produced 57,600 units but sold 69,600 units. (Assume no change in total fixed costs.) a. Prepare a contribution format income statement for the month using variable costing. Variable expenses: Fixed expenses: Cost of goods sold: 0 $ b. Prepare an income statement for the month using absorption costing. (Do not leave any empty spaces; input a O wherever it is required.) $ 0 0 0 0 0 0 0 Variable costing operating income (loss) Deduct: Fixed manufacturing overhead cost released from inventory under absorption costing Absorption costing operating income (loss) c. Reconcile the variable costing and absorption costing operating income figures. $ 0