Canada Brewers Ltd has just created a new division to manufa

Canada Brewers Ltd. has just created a new division to manufacture and sell single-cup coffee makers under licence from a major single-cup coffee producer. The facility is highly automated and so has high monthly fixed costs, as shown in the following schedule of budgeted monthly costs. This schedule was prepared based on an expectation of a monthly production volume of 2,700 units During August, the following activity was recorded Units produced Units sold 2,700 2,000 $ 95 Selling price per unit Manufacturing costs Variable cost per unit Direct material Direct labour Variable overhead $ 18 16 12 $75,600 Total fixed overhead Selling and administrative costs Variable Fixed 5% of sales 12,000 Required. 1. Prepare an income statement for the month ended August 31, under absorption costing CANADA BREWERS LTD Absorption Costing Income Statement For month ended August 31 Cost of goods sold Selling and administrative costs

Solution

CANADA BREWERS LTD. Absorption costing income statement For Month ended August 31 Sales (2,000 units) 190000 Cost of goods sold: Direct material 48600 Direct labour 43200 Variable Overhead 32400 124200 Total fixed overehad 75600 Selling and administrative costs Variable 9500 Fixed 12000 21500 Income from operations -31300 CANADA BREWERS LTD. Variable costing income statement For Month ended August 31 Sales (2,000 units) 190000 Variable cost Direct material 36000 Direct labour 32000 Variable Overhead 24000 Variable Selling and administrative costs 9500 101500 Less: Fixed costs: Total fixed overhead 75600 Fixed selling and administrative cost 12000 87600 Income from operations 900 Operating Income (loss) under absorption costing -31300 Less: Fixed deferred in inventory 32200 Operating Income (loss) under variable costing 900