Advance products, inc., has just organized a new division

Problem 7-12 comprehensive problem with Labor Fixed [LO1, LO2,LO3,LO4]

Advance Products, Inc., has just organized a new division to manufacture and sell specially designed tables using select hardwoods for personal computers. The division’s monthly costs are shown in the schedules below:

Manufacturing costs:

Variable costs per unit

Direct materials                                                                                                $86

                                Variable manufacturing overhead                                            $4

                                Fixed manufacturing overhead costs(total)                          $240,000

                Selling and administrative costs

                                Variable                                                                                               15% of sales

                                Fixed (Total)                                                                                       $160,000

Advance Products regards all of its workers as full-time employees and the company has a longstanding no-layoff policy. Furthermore, production is highly automated. Accordingly, the company includes its labor costs in its fixed manufacturing overhead. The following activity was recorded:

Units produced                 4,000

Units sold                            3,200

Requirement 1

(a) compute the unit product cost under absorption costing. (Omit the “$” sign in your response.)

Unit product cost                             $_________________

(b)  Compute the unit product cost under Variable costing.(Omit the “$” sign in your resonse)

Unit product cost             $______________

Requirement 2:

Prepare an income statement for the month using absorption costing. (Leave no cells blank – be certain to enter “0” whenever required. Omit “$” sign in your response.)

Absorption costing income statement

_________________                                                                                                                   $___________

Cost of goods sold

_________________                                                   $_________________

_________________                                                   __________________

___________                                                                   __________________

Requirement 3

Prepare a contribution format income statement for the month using variable costing.(Input all amounts as positive values. Leave no cell blank-be certain to enter “0” whenever required. Omit the “#” sign in your response.)

Variable costing income statement

______________                                                                                                                           $____________

Variable expenses:

                Variable cost of goods sold

__________                                                                                     $____________

__________                                                                                     _____________

Variable cost of goods sold                                                                          _______

_____________                                                                                             _________________________________       

Fixed expenses                                                                                                                                                _____________

____________                                                                                                                _________

______________                                                                                           ___________________________       

_______                                                                                                             $__________________________

Requirement 4

Assume that the company must obtain additional financing. As a member of top management, which of the statements that you have prepared in (2) and (3) above would you prefer to take with you as you negotiation with the bank?

(a) Absorption costing statement

(b) Variable costing statement

Requirement 5reconcile the absorption costing and variable costing net operating income figures in (2) and (3) above. (input all amounts as positive values. Omit the “$” sign in your response.)

___________                                                                                                   $_______________

___________: Fixed manufacturing overhead cost deferred     ________________

___________                                                                                                   $_______________