Question

anufacturing costs
Direct materials	$	35	per unit
Direct labor	$	55	per unit
Overhead costs
Variable	$	20	per unit
Fixed	$	8,400,000	(per year)
Selling and administrative costs for the year
Variable	$	700,000
Fixed	$	4,250,000
Production and sales for the year
Units produced		105,000	units
Units sold		75,000	units
Sales price per unit	$	350	per unit

1. Prepare an income statement for the year using variable costing.
2. Prepare an income statement for the year using absorption costing.

Answer 1

Answer 1.

26,250,000 Variable Costing Income Statement Sales Variable Expenses: Variable Cost of Goods Sold $ Variable Selling and Administrative Expenses $ Total Variable Expenses $ Contribution Margin Fixed Expenses: Fixed Manufacturing Overhead $ Fixed Selling and Administrative Expenses $ Total Fixed Expenses $ Net Operating Income $ 8,250,000 700,000 8,950,000 17,300,000 8,400,000 4,250,000 12,650,000 4,650,000

Unit Product Cost = Direct Materials + Direct Labor + Variable Manufacturing Overhead
Unit Product Cost = $35 + $55 + $20
Unit Product Cost = $110

Sales = 75,000 * $350
Sales = $26,250,000

Variable cost of goods sold = 75,000 * $110
Variable cost of goods sold = $8,250,000

Answer 2.

Absorption Costing Income Statement Sales $ Cost of Goods Sold $ Gross Profit $ Selling and Administrative Expenses $ Net Operating Income $ 26,250,000 14,250,000 12,000,000 4,950,000 7,050,000

Unit Product Cost = Direct Materials + Direct Labor + Variable Manufacturing Overhead + Fixed Manufacturing Overhead
Unit Product Cost = $35 + $55 + $20 + $8,400,000/105,000
Unit Product Cost = $190

Sales = 75,000 * $350
Sales = $26,250,000

Cost of goods sold = 75,000 * $190
Cost of goods sold = $14,250,000