# Cost of Sales Formula

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```					               Name:                                                                         Date:
Instructor:                                                                     Course:
Managerial Accounting, 3rd Edition, by Weygandt, Kieso, and Kimmel
Solving Managerial Accounting Problems Using Microsoft Excel for Windows by Rex A Schildhouse
Problem P7-1A, Blue Mountain Products manufactures and sells a variety of camping products. Recently the company opened a new plant to
manufacture a light-weight, self-standing tent. Cost and sales data for the month of operations are shown below.
Manufacturing costs:
Fixed overhead                               \$200,000
Variable overhead                                  \$4 per tent
Direct labor                                      \$16 per tent
Direct materials                                  \$40 per tent

Beginning inventory                                   0 tents
Tents produced                                   10,000
Tents sold                                        9,000

Selling and administrative costs:
Fixed                                      \$400,000
Variable                                         \$6 per tent sold

The tent sells for          \$150      Management is interested in the opening month's results and has asked for an income statement.

Instructions:
(a)(i) Assuming the company uses absorption costing, calculate the manufacturing cost per unit.

Absorption Manufacturing Costs Per Tent
Title                                                                  Amount
Title                                                                  Amount
Title                                                                  Amount
Title                                                                  Amount
Title                                                                  Formula

(a)(ii) Assuming the company uses absorption costing, prepare an absorption costing income statement for the month of June 2005.

BLUE MOUNTAIN PRODUCTS
Income Statement
For the Month Ended June 30, 2005
Absorption Costing
Sales                                                                            Formula
Title                                                                            Formula
Title                                                                            Formula
Title                                                                  Formula
Title                                                                  Amount
Title                                                                            Formula

(b)(i) Assuming the company uses variable costing, calculate the manufacturing cost per unit.

Variable Manufacturing Costs Per Tent
Title                                                                  Amount
Title                                                                  Amount
Title                                                                  Amount
Manufacturing cost                                                     Formula

(b)(ii) Assuming the company uses variable costing, prepare an variable costing income statement for the month of June 2005.

BLUE MOUNTAIN PRODUCTS
Income Statement
For the Month Ended June 30, 2005
Variable Costing
Sales                                                                            Formula
Title                                                                  Formula
Title                                                                  Formula   Formula
Title                                                                            Formula
Title                                                                  Amount
Title                                                                  Amount    Formula
Net income                                                                       Formula

(c) Reconcile the difference in net income between the two methods.
Text answer as appropriate.

Area for computation as desired

FileName: bafdc49d-202a-4271-bd53-7adb34236d12.xls, Tab: Problem P7-1A, Page 1 of 2, 11/9/2010, 11:42 AM
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