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Canada Brewers Ltd. has just created a new division to manufacture and sell single-cup coffee...

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Accounting

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 1,650 units.
During August, the following activity was recorded:

Units produced 1,650
Units sold 1,300
Selling price per unit $ 60

Manufacturing costs:
Variable cost per unit:
Direct material $ 11
Direct labour 9
Variable overhead 5
Total fixed overhead $ 34,650
Selling and administrative costs:
Variable 5 % of sales
Fixed 9,100

1. Prepare an income statement under absorption costing

2. Prepare an income statement under variable cosing.

3.

Beginning with absorption costing, reconcile the absorption costing and variable costing income figures for the month.

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