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 schedule below:
| Manufacturing costs: | |
| Variable costs per unit: | |
| Direct materials | $86 |
| Variable manufacturing overhead | $6 |
| Fixed manufacturing overhead costs (total) | $254,200 |
| Selling and administrative costs: | |
| Variable | 13% of sales |
| Fixed (total) | $161,000 |
Advance Products regards all of its workers as full-time employees and the company has a long-standing no-layoff policy. Furthermore, production is highly automated. Accordingly, the company includes its labor costs in its fixed manufacturing overhead. The tables sell for $260 each.
During the first month of operations, the following activity was recorded:
| Units produced | 4,100 |
| Units sold | 3,300 |
Required:
1. Compute the unit product cost under absorption costing and variable costing.
2. Prepare an income statement for the month using absorption costing.
3. Prepare a contribution format income statement for the month using variable costing.
