Question

Required information Exercise 06-9 Income statement under absorption costing and variable costing LO P1, P2 The following information applies to the questions displayed below] Cool Sky reports the following costing data on its product for its first year of operations. During this first year, the company produced 44,000 units and sold 36,000 units ata price of $140 per unit. Manufacturing costs Direct materials per unit Direct labor per unit Variable overhead per unit Fixed overhead for the year Selling and administrative costs Variable selling and administrative cost per unit Fixed selling and administrative cost per year 60 22 8 $ 528,000 $ 11 $1e5,000 Exercise 06-9 Part 1a 1a. Assume the company uses absorption costing. Determine its product cost per unit

Answer 1

1a. Product cost per unit
Per unit product cost using:	Absorption costing
Direct material per unit	$60
Direct labor per unit	$22
Variable overhead per unit	$8
Fixed overhead per unit                                                                         [Fixed overhead ÷ Number of units produced = $528,000 ÷ 44,000 units]	$12
Total Cost per unit	$102

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COOL SKY
Absorption Costing Income Statement
Sales                                     [36,000 units x $140 per unit]		$5,040,000
Less: Cost of goods Sold
Direct materials                [36,000 units x $60]	$2,160,000
Direct labor                      [36,000 units x $22]	$792,000
Variable overhead cost     [36,000 units x $8]	$288,000
Fixed overhead cost         [36,000 units x $12]	$432,000
Cost of goods sold		$3,672,000
Gross Margin           [Sales - Cost of goods sold]		$1,368,000
Selling, General, and Administrative expenses
Variable selling and administrative expenses [36,000 units x $11]	$396,000
Fixed selling and administrative cost	$105,000
		$501,000
Net Income (loss)        [$1,368,000 - $501,000]		$867,000

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2a. Product cost per unit
Per unit product cost using:	Variable Costing
Direct material per unit	$60
Direct labor per unit	$22
Variable overhead per unit	$8
Cost per unit	$90

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COOL SKY
Variable Costing Income Statement
Sales                                     [36,000 units x $140 per unit]		$5,040,000
Less: Variable Costs
Variable Production Costs                               [Unts sold x Cost per unit = 36,000 units x $90]	$3,240,000
Variable Selling and administrative expenses [36,000 x $11]	$396,000
Total Variable Costs		$3,636,000
Contribution Margin           [Sales - Total Variable Costs]		$1,404,000
Less: Fixed expenses
Fixed Overhead costs	$528,000
Fixed selling and administrative cost	$105,000
Total fixed expenses		$633,000
Net Income (loss)       [$1,404,000 - $633,000]		$771,000