Question

Rainbow Concrete Corporation has provided the following data for its two most recent years of operation: Selling price per unit $88 Manufacturing costs: Variable manufacturing cost per unit produced: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead per year Selling and administrative expenses: Variable selling and administrative expense per unit sold Fixed selling and administrative expense per year 360,000 74,000 Year 1 Units in beginning inventory Units produced during the year Units sold during the year Units in ending inventory 15,000 10,000 5.000 Year 2 5,000 12,000 15,000 2,000 Complete (a) through € (a). Assume the company uses absorption costing. Compute the unit product cost in each year. Year 1 Year 2 (b). Assume the company uses absorption costing. Prepare an income statement for each year. Year 1 Year 2 Sales

Answer 1

a)	Absorption costing
	Particulars			Year 1	Workings	Year 2	Wokrings
	Direct Materials			$   18.00		$   18.00
	Direct Labor			$   12.00		$   12.00
	Variable Manu. OH			$      6.00		$      6.00
	Fixed Manu. OH			$   24.00	($ 360000 / 15000)	$   30.00	($ 360000 / 12000)
				$   60.00		$   66.00

b)	Income Statement
	Particulars			Year 1	Workings	Year 2	Workings
	Sales			$ 880,000.00	(10000 x $ 88)	$ 1,320,000.00	(15000 x $ 88)
Less:	Cost of Goods sold			$ 600,000.00	(10000 x $ 60)	$    960,000.00	[(5000 x $ 60) + (10000 x $ 66)]
	Gross Margin			$ 280,000.00		$    360,000.00
Less:	Selling and Adm. Expenses
	Variable S&A expenses			$   70,000.00	(10000 x $ 7)	$    105,000.00	(15000 x $ 7)
	Fixed S&A expenses			$   74,000.00		$      74,000.00
	Total S&A expenses			$ 144,000.00		$    179,000.00
	Net operating income			$ 136,000.00		$    181,000.00

c)	Variable Costing
	Particulars			Year 1	Year 2
	Direct Materials			$   18.00	$   18.00
	Direct Labor			$   12.00	$   12.00
	Variable Manu. OH			$      6.00	$      6.00
				$   36.00	$   36.00

d)	Income Statement
	Particulars			Year 1	Workings	Year 2	Wokrings
	Sales			$ 880,000.00	(10000 x $ 88)	$ 1,320,000.00	(15000 x $ 88)
Less:	Variable Manu. Cost			$ 360,000.00	(10000 x $ 36)	$     540,000.00	(15000 x $ 36)
Less:	Variable S&A Expense			$   70,000.00	(10000 x $ 7)	$     105,000.00	(15000 x $ 7)
	Contribution Margin			$ 450,000.00		$     675,000.00
Less:	Fixed Expenses:
	Fixed Manu. OH			$ 360,000.00		$     360,000.00
	Fixed S&A Expense			$   74,000.00		$       74,000.00
	Total Fixed Expenses			$ 434,000.00		$     434,000.00
	Net Operating Income			$   16,000.00		$     241,000.00

Note: As HOMEWORKLIB RULES's policy, I've completed first 4 parts of the question