Reference no: EM132595479
Doom Bhd manufactures and sells a single product. Cost data for the product are given below:
Variable costs per unit:
Direct materials RM 7
Direct labour RM 10
Variable manufacturing overhead RM 5
Variable selling and administrative overhead RM 3
Total variable cost per unit RM 25
Fixed costs per month:
Fixed manufacturing overhead RM315,000
Fixed selling and administrative overhead RM245,000
RM560,000
The product sells for RM60 per unit. Production and sales data for July and August, that is, the first two months of operations, follow:
Units produced Units sold
July 17,500 15,000
August 17,500 20,000
The company's Accounting Department has prepared an absorption costing income statement for July and August as presented below:
July August
Sales RM 900,000 RM 1,200,000
(-) Cost of goods sold (RM 600,000) (RM 800,000)
Gross margin RM 300,000 RM 400,000
(-) Selling and administrative expenses (RM290,000) (RM 305,000)
Net operating income RM10,000 RM 95,000
Question 1: As a cost accountant, you would like to suggest that the company use variable costing in order to help the decision-making process. Make a report to indicate the differences of the two reporting income statements. Your report should consist of the income statement for variable costing and computation the unit product cost under absorption and variable costing.