Week 3 Written Assignment

Far North Telecom, Ltd., of Ontario, has organized a new division to manufacture and sell specialty cellular telephones.  The division’s monthly costs are shown in the table below.  Far North Telecom regards all of its workers as full-time employees and the company has a long-standing no layoff policy.  Furthermore, production is highly automated.  Accordingly, the company includes its labor costs in its fixed manufacturing overhead.  The cellular phones sell for $150 each.  During September, the first month of operations, the following activity was recorded: 12,000 units produced, 10,000 units sold.  Comment on the five questions below the table.  Respond to at least two of your fellow students’ postings. 

|Manufacturing costs: | |

|Variable costs per unit: | |

|Direct Materials |$48 |

|Variable manufacturing overhead |$2 |

|Fixed manufacturing overhead costs (total) |$360,000 |

|Selling and administration costs: | |

|Variable |12% of sales |

|Fixed (total) |$470,000 |

1. Compute the unit product cost under:

o absorption costing 

o variable costing

2. Prepare an absorption costing income statement for September

3. Prepare a contribution format income statement for September using variable costing.

4. Assume that the company must obtain additional financing in order to continue...