Problem - Variable and Absorption Costing Unit Product Costs and Income Statements; Explanation of Difference in Net Operating Income
Wiengot Antennas, Inc. produces and sells a unique type of TV antenna. The company has just opened a new plant to manufacture the antenna, and the following cost and revenue data have been provided for the first month of the plant's operation in the form of a worksheet:
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Beginning Inventory
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0
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Units Produced
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40,000
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Units Sold
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35,000
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Selling Price Per Unit
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$60
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|
|
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Selling and Administrative Expenses
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|
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Variable Per Unit
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$2
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Fixed (Total)
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$560,000
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Manufacturing Costs
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|
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Direct Materials Cost Per Unit
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$15
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Direct Labor Cost Per Unit
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$7
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Variable Manufacturing Overhead Cost Per Unit
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$2
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Fixed Manufacturing Overhead Cost (Total)
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$640,000
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Because the new antenna is unique in design, management is anxious to see how profitable it will be and has asked that an income statement be prepared for the month.
1. Assume that the company uses absorption costing.
a. Determine the unit product cost.
b. Prepare an income statement for the month.
2. Assume that the company uses variable costing.
a. Determine the unit product cost.
b. Prepare a contribution format income statement for the month.
3. Explain the reason for any difference in the ending inventory balances under the two costing methods and the impact of this difference on reported net operating income.