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Hello John,
A company manufactures a unique device that is used to boost Wi-fi signals. The following data relates to the first month of operation.
Beginning Inventory. 0
Units produced. 40,000
Units sold. 35,000
Selling price per unit. 120
Selling and administrative expenses
Variable per unit. 4
Fixed(total of the month) 1,120,000
Manufacturing costsDirect materials cost per unit. 30
Direct labour cost per unit. 14
Variable manufacturing overhead
cost. 4Fixed manufacturing overhead
cost. 1,280,000The question requires income statement under absorption and marginal costing.
Are fixed overheads estimated to be 1,120,000 regardless of Units produced? Therefore we shall need to adjust for the amount 1,280,000?
Also, I’m confused about how to work out the Selling and administrative expenses?
Thank you so much.
1. For the fixed manufacturing overheads, you need to calculate the absorption rate (based on the budgeted overheads and the budgeted production). In the statement, the total overheads charged will be the actual production multiplied by the absorption rate that you have calculated. You then adjust for the over or under absorption (the difference between the amount charged/absorbed and the actual total).
2. The selling expense is the actual number sold multiplied by the variable selling cost per unit.
(The above is for the absorption statement. For the marginal statement you work on the contribution. I work through a similar example using both absorption and marginal costing in my free lectures.)
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