Scott product inc._Variable and absorption costing



During the 1st month of operation the device was selling on
the market very well. Ms. Scott was looking forward to a healthy profit. Yet
she was angry to see a loss for the month on the income statement. The
statement was prepare by her account service

Scott product inc. – sale 40,000 unit 200,000

Variable exp

Variable cost of goods sold 80,000

Variable selling exp 30,000 110,000

Contribution margin 90,000

Fixed manufacturing overhead 75,000

Fixed selling exp 20,000

Net operating loss 5000

Ms. Scott is angry because of the loss for the month. She planned
to use her statement to show investor to purchase stock in her company. A cpa
friend of Ms. Scott said she should use
the absorption cost rather than the variable cost. The cpa inform Ms. Scott if she use the absorption cost rather
than variable then she would have made a profit for the month. Based on the
data of the company operation Scott product inc. unit produced 60,000, units
sold =40,000 variable cost per unit direct material=1.00; direct labor= 80
cents; variable overhead = 20 cents; variable selling exp= 75 cents

Questions I need to complete the following-

1. compare the unit product cost under absorpotion costing

2. redo the company income statement for the month using
absorotion costing.

3. Was ms scott cpa friend was telling her the truth that she
would make a profit. I need to explain this question.

During the 2nd month of operation the company again produce
50,000 unit but sold 60,000 units. Assume
no change in total fix cost

i need to prepare a
contribution format income statement for the month using variable costing

i need to prepare an
income statement for the month using absorption costing

i need to reconcile the variable costing and cost operation


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