Home / Questions / PROBLEM 6 21 Prepare and Reconcile Variable Costing Statements LO1 LO2 LO3 Linden Company...
PROBLEM 6–21 Prepare and Reconcile Variable Costing Statements [LO1, LO2, LO3]
Linden Company manufactures and sells a single product. Cost data for the product follow:
The product sells for $40 per unit. Production and sales data for May and June, the first two months of operations, are as follows:
Income statements prepared by the accounting department, using absorption costing, are pre- sented below:
|
|
May |
|
June |
|
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
$1,040,000 |
|
$1,360,000 |
|
Cost of goods sold . . . . . . . . . . . . . . . . . . . . |
780,000 |
|
1,020,000 |
|
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . |
260,000 |
|
340,000 |
|
Selling and administrative expenses . . . . . . |
258,000 |
|
282,000 |
|
Net operating income . . . . . . . . . . . . . . . . . . |
$ 2,000 |
|
$ 58,000 |
Required:
1. Determine the unit product cost under:
a. Absorption costing.
b. Variable costing.
2. Prepare contribution format variable costing income statements for May and June.
3. Reconcile the variable costing and absorption costing net operating incomes.
4. The company’s Accounting Department has determined the break-even point to be 28,000 units per month, computed as follows:
Fixed cost per month
$420,000
Unit contribution margin = $15 per unit = 28,000 units
Upon receiving this figure, the president commented, “There’s something peculiar here. The con- troller says that the break-even point is 28,000 units per month. Yet we sold only 26,000 units in
May, and the income statement we received showed a $2,000 profit. Which figure do we believe?” Prepare a brief explanation of what happened on the May income statement.
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