Question

2. (8 points) The Morse Corporation produces and sells a single product. The following data refer to the year just completed: Beginning inventory Units produced 0 9,000 7,000 $ Units sold Selling price per unit Selling and administrative expenses: Variable per unit Fixed per year 47 $ 58,000 Manufacturing costs: Direct materials cost per unit Direct labor cost per unit Variable manufacturing overhead cost per unit Fixed manufacturing overhead per year $ $ $ 10 6 5 90,000 Assume that direct labor is a variable cost. Required: a. Compute the unit product cost under both the absorption costing and variable costing approaches. b. Prepare an income statement for the year using absorption costing c. Prepare an income statement for the year using variable costing.

Answer 1

absorption costing unit cost
particular	amount
direct material	10
direct labour	6
variable manufacturing overhead	5
fixed manufacturing overhead (90,000 /9,000)	10
unit cost	31
income statement (absorption costing)
particular	amount
sale ( 7,000 x 47)	3,29,000
less: cost of goods sold (7,000 x 31)	2,17,000
gross profit	1,12,000
less: variable and fixed selling and admin. Exp
variable (7,000 x 4)	28,000
fixed	58,000
net income	26,000
variable costing unit product cost
particular	amount
direct material	10
direct labour	6
variable manufacturing overhead	5
unit product cost	21
income statement (variable costing)
particular	amount
sale ( 7,000 x 47)	3,29,000
less: variable cost:
cost of goods sold (7,000 x 21))	1,47,000
selling and administrative expense (7,000 x 4)	28,000
contribution margin	1,54,000
less: fixed expense
manufacturing overhead	90,000
selling and administrative expense	58,000
net income	6,000