DDD Golf Ltd. produces and sells special golf balls for $20 for a pack of three. In May 2012, the company manufactured 30,000 packs (its normal volume) and sold 28,000 packs. The beginning inventory on May 1, 2012, was 5,000 packs. Production information for May 2012 is as follows:
Direct manufacturing labour per pack ..................................... 15 minutes
Fixed selling and administrative costs ......................................... $40,000
Fixed manufacturing overhead ............................................... $132,000
Direct materials costs per pack ....................................................... $2
Direct labour rate per hour .......................................................... $24
Variable manufacturing overhead per pack ......................................... $4
Variable selling expenses per pack .................................................. $2
Instructions
(a) Calculate the total cost per pack under both absorption and variable costing.
(b) Prepare income statements in good form for the month ended May 31, 2012, under absorption and variable costing.
(c) Reconcile the operating income calculated under absorption costing with the operating income calculated under variable costing. Assume that April's costs were the same as those of May?