help in homework

New User?

Fill This Form To Receive Instant Help

Help in Homework
trustpilot ratings
google ratings


Homework answers / question archive / Stark, Inc

Stark, Inc

Management

Stark, Inc., produces and sells a unique robot antenna. The company has just opened a new plant to manufacture the antenna, and the following cost and revenue data have been reported for the first month of the new plant's operation:

Selling price

 $108

Beginning inventory

 0

Units produced

 35,000

Units sold

 30,000

Selling price per unit

 $50

Selling and Admin expenses:      

 

  Variable per unit

 $2

  Fixed (total)

 $360,000

Manufacturing costs:      

 

  Direct material cost per unit

 $9

  Direct labour cost per unit

 $8

  Variable overhead cost per unit

 $3

  Fixed overhead cost (Total)

 $350,000

 

Management is anxious to see how profitable the new antenna will be and has asked that an income statement be prepared for the month. Assume that direct labour is a variable cost.

Submission instructions:

  • Assuming that the company uses absorption costing, compute the unit product cost and make an income statement.
  • Assuming that the company uses variable costing, compute the unit product cost and make an income statement.
  • Explain the reason for any difference in the ending inventories under the two costing methods and the impact of this difference on reported operating income.

pur-new-sol

Purchase A New Answer

Custom new solution created by our subject matter experts

GET A QUOTE

Answer Preview

a.)   Amount $  
  Direct material cost per unit 9  
  Direct labour cost per unit 8  
  Variable overhead cost per unit 3  
  Fixed Overhead cost per unit 10  =350000/35000
  Unit Product Cost 30  
       
  Absorption Costing Income Statement    
    Amount $  
  Sales 1,500,000  =30000*50
  Cost of Goods Sold:    
  Beginning Inventory-             -    
  Add :Cost of goods manufactured 1,050,000  =30*35000
  Less:Ending Inventory 150000  =5000*30
  Cost of Goods Sold 900,000  
  Gross profit 600,000  
  Less :Fixed selling & administrative Expense 360000  
  Less :Variable selling & administrative Expense 60000  =30000*2
  Net Income 180,000  
       
       
b.)   Amount $  
  Direct material cost per unit 9  
  Direct labour cost per unit 8  
  Variable overhead cost per unit 3  
  Unit Product Cost 20  
       
  Variable Costing Income Statement    
    Amount $  
  Sales 1,500,000  =30000*50
  Cost of Goods Sold:    
  Beginning Inventory             -    
  Add :Cost of goods manufactured 700000  =35000*20
  Less :Ending inventory 100000  =5000*20
  Variable cost of goods sold 600000  
  Less :Variable selling & administrative Expense 60000  =30000*2
  Contribution margin 840,000  
  Fixed costs:    
  Less: Fixed Overhead Costs 350000  
  Less :Fixed selling & administrative Expense 360000  
  Total Fixed Cost 710000  
  Net Income 130,000  
       
       

 

      
  c) Reconciliation of profits under both the methods:-    
       
  Net operating income under Absorption 130,000  
  Add:- Fixed manufacturing OH attributable to closing stock (since it is not considered in Variable costing approach) 50,000  
  Net Income under Variable costing approach 180,000  
       

The main reason is Variable costing approach does not take into account Fixed manufacturing OH in valuation of product cost but Absorption costing approach considers it in its product cost.

 

Sitejabber (5.0)

BBC (5.0)

Trustpilot (4.9)

Google (5.0)