Question

Production and cost data for the first two years of operations are: Units produced Units sold Year 1 22,000 17,000 Year 2 22,000 27,000 Required: 1. Using variable costing, what is the unit product cost for both years? 2. What is the variable costing net operating income in Year 1 and in Year 2? 3. Reconcile the absorption costing and the variable costing net operating income figures for each year. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Using variable costing, what is the unit product cost for both years? Unit product cost $ 20 Required 1 Required 2 >

Answer 1

1). Unit product cost under variable costing Direct materials Direct labor Var. manufacturing overhead Unit product Cost 7.00 10.00 3.00 20.00 2). Net Operating Income under variable costing Year 1 17,000 Year 2 27,000 Units sold Sales $ 10,54,000.00 $ 16,74,000.00 $ $ $ 3,40,000.00 $ 51,000.00 $ 6,63,000.00 $ 5,40,000.00 81,000.00 10,53,000.00 Less: Variable expenses Cost of goods sold ($20 per unit) Var. selling expenses ($3 per unit) Contribution margin Less: Fixed expenses Fixed manufacturing expenses Fixed selling expenses Net Operating Income $ s 3,30,000.00 $ 2,52,000.00 $ 81,000.00 $ 3,30,000.00 2,52,000.00 4,71,000.00 Year 2 4,71,000.00 3). Reconciliation of income between absorption and variable costing Year 1 Variable costing net income (loss) $ 81,000.00 $ Add: Fixed manufacturing overhead cost deferred in inventory under absorption costing (22000 - 17000) * $15) $ 75,000.00 Less: Fixed manufacturing overhead cost released from inventory under absorption costing (5000 * $15) Absorption costing net operating income $ 1,56,000.00 $ 1000 * 151 -75,000.00 3,96,000.00