Problem 8-16 Comparison of Costing Methods- Canada Brewers Ltd.

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 2,250 units.

     During August, the following activity was recorded:

  Units produced

2,250

  Units sold

1,400

  Selling price per unit

$

100

  Manufacturing costs:

     Variable cost per unit:

        Direct material

$

19

        Direct labour

17

        Variable overhead

13

  Total fixed overhead

$

47,250

  Selling and administrative costs:

     Variable

5

% of sales

     Fixed

12,600

 Required:

1.

Prepare an income statement for the month ended August 31, under absorption costing.

2.

Prepare an income statement for the month ended August 31, under variable costing.

3.

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