Answer:
1. The unit product cost under absorption costing and variable costing.
Product Cost : Absorption Costing = $23,44
Product Cost : Variable Costing = $19.00
2. Contribution format variable costing income statements for July and August.
July August
Sales 1,196,000 1,612,000
Less Cost of Sales : (437,000) (513,000)
Opening Stock 0 76,000
Add Production 513,000 513,000
Less Closing Stock (76,000) (76,000)
Contribution 759,000 1,099,000
Less Expenses :
Selling and administrative expenses
Variable : (23,000) (21,000)
Fixed : (169,000) (169,000)
Net operating income 567,000 909,000
3. Reconcile the variable costing and absorption costing net operating income
July August
Absorption costing net operating income $584,760 $891,240
Add Fixed Costs in Opening Inventory $17,760
Less Fixed Costs in Closing Inventory ($17,760)
Variable costing net operating income $567,000 $909,000
Explanation:
Product Cost : Absorption Costing = All Manufacturing Costs (Fixed and Variable)
= $5+$11+$3+($120,000/27,000)
= $5+$11+$3+$4.44
= $23,44
Product Cost : Variable Costing = Variable Manufacturing Costs
= $5+$11+$3
= $19.00
