To calculate the unit product cost per electric scooter under absorption costing, you need the following information:
- Direct materials cost per unit
- Direct labor cost per unit
- Variable manufacturing overhead per unit
- Fixed manufacturing overhead per unit (allocated using a predetermined overhead rate)
- Number of scooters produced in 2019
Add up all these costs to get the unit product cost per electric scooter under absorption costing.
To calculate the unit product cost per electric scooter under variable costing, you only need the variable costs:
- Direct materials cost per unit
- Direct labor cost per unit
- Variable manufacturing overhead per unit
Add up these costs to get the unit product cost per electric scooter under variable costing.
For part (b), you need the following information to prepare an income statement using absorption costing:
- Sales revenue
- Cost of goods sold (unit product cost per electric scooter under absorption costing multiplied by the number of scooters sold)
- Selling and administrative expenses
- Other income and expenses (if any)
After deducting cost of goods sold and selling and administrative expenses from sales revenue, and adding or subtracting other income and expenses, you will get the operating profit under absorption costing.
For part (c), you need the following information to prepare a contribution format income statement using variable costing:
- Sales revenue
- Variable expenses (unit product cost per electric scooter under variable costing multiplied by the number of scooters sold)
- Fixed expenses (including selling and administrative expenses)
Deducting variable expenses from sales revenue, and subtracting fixed expenses from the result, will give you the contribution margin. Subtracting any other income or adding any other expenses will give you the operating profit under variable costing.
For part (d), you need to compare the operating profit derived from the income statements prepared in parts (b) and (c). Calculate the difference between the two to reconcile the operating profit under the two costing methods.
Scoot Speed Limited manufactures electric scooter. The company provided the following financial information for the year 2019: Required: (a) Calculate the unit product cost per electric scooter under BOTH Absorption costing and Variable costing. (5 marks) (b) Prepare an income statement for the year using Absorption costing. (5 marks) (c) Prepare a contribution format income statement for the year using Variable costing. (5 marks) (d) Reconcile the operating profit derived from (b) and (c) under the two costing methods. (5 marks)
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