Question

Baxtell Company manufactures and sells a single product. The following costs were incurred during the company's first year of operations: Variable costs per unit: Manufacturing: Direct materials Direct labour Variable manufacturing overhead Variable selling and administrative Fixed costs per year: Fixed manufacturing overhead Fixed selling and administrative expense 276,300 133.000 During the year, the company produced 30,700 units and sold 26,600 units. The selling price of the company's product is $70 per unit. Required: 1. Assume that the company uses absorption costing. a. Compute the unit product cost. Unit product cost b. Prepare an income statement for the year. Absorption Costing Income Statement < Prev 20 of

Answer 1

1	Under Absorption Costing
a.	Unit product cost:
	Direct Material		$               26
	Direct Labor		$               12
	Variable Manufacturing overhead		$                  3
	Total Variable Cost		$               41
	Fixed Manufacturing overhead ($276300/30700)		$                  9
	Unit product cost		$               50
b.	Absorption Costing Income Statement
	Sales(26600 X $70)		$ 18,62,000
Less:	Cost of Goods Sold
	Beginning Inventory	0
Add:	Cost of Goods manufactured (30700 X $50)	$ 15,35,000
	Goods available for sale	$ 15,35,000
Less:	Ending Inventory (4100 X $50)	$   2,05,000	$ 13,30,000
	Gross Margin		$   5,32,000
Less:	Selling and Administrative expenses [(26600 X $10) + $133000]		$   3,99,000
	Net Operating Income		$   1,33,000
2	Under Variable Costing
a.	Unit product cost:
	Direct Material		$               26
	Direct Labor		$               12
	Variable Manufacturing overhead		$                  3
	Unit product cost		$               41
b.	Variable Costing Income Statement
	Sales(26600 X $70)		$ 18,62,000
Less:	Variable expenses:
	Variable Cost of goods sold:
	Beginning Inventory	0
Add:	Variable Manufacturing Cost(30700 X $41)	$ 12,58,700
	Goods available for sale	$ 12,58,700
Less:	Ending Inventory (4100 X $41)	$   1,68,100
	Variable Cost of goods sold	$ 10,90,600
Add:	Variable selling expenses (26600 X $10)	$   2,66,000	$ 13,56,600
	Contribution margin		$   5,05,400
Less:	Fixed Expenses:
	Fixed Manufacturing overhead	$   2,76,300
	Fixed Selling and Administrative expenses	$   1,33,000	$   4,09,300
	Net operating Income		$       96,100