Question

Problem 6A-5 Super-Variable Costing, Variable Costing, and Absorption Costing Income Statements [LO6-2, LO6-6) Bracey Company manufactures and sells one product. The following information pertains to the company's first year of operations: $ 27 Variable cost per unit: Direct materials Fixed costs per year: Direct labor Fixed manufacturing overhead Fixed selling and administrative expenses $ 348,000 $ 379,200 $ 64,000 The company does not incur any variable manufacturing overhead costs or variable selling and administrative expenses. During its first year of operations, Bracey produced 24,000 units and sold 22,300 units. The selling price of the company's product is $63 per unit. Required: 1. Assume the company uses super-variable costing: a. Compute the unit product cost for the year. b. Prepare an income statement for the year. 2. Assume the company uses a variable costing system that assigns $14.50 of direct labor cost to each unit produced: a. Compute the unit product cost for the year. b. Prepare an income statement for the year.

Answer 1

1A) Unit product cost under super-variable costing= Direct materials= $27

1B)

Bracey Company
Super-Variable Costing Income Statement
Sales (22300*$63)		$1404900
Variable cost of goods sold (22300*$27)		(602100)
Contribution margin		802800
Fixed expenses:
Fixed manufacturing overhead	379200
Fixed selling and administrative expenses	64000
Direct labor	348000
		(791200)
Net operating income		$11600

2A) Unit product cost under variable costing= Direct materials+Direct labor

= $27+14.50= $41.50

2B)

Bracey Company
Variable Costing Income Statement
Sales (22300*$63)		$1404900
Variable cost of goods sold (22300*$41.50)		(925450)
Contribution margin		479450
Fixed expenses:
Fixed manufacturing overhead	379200
Fixed selling and administrative expenses	64000
		(443200)
Net operating income		$36250

3A) Unit product cost under absorption costing

Direct materials	$27.00
Direct labor	14.50
Fixed manufacturing overhead	15.80
Total unit product cost	$57.30

3B)

Bracey Company
Absorption Costing Income Statement
Sales (22300*$63)	$1404900
Cost of goods sold (22300*$57.30)	(1277790)
Gross margin	127110
Selling and administrative expenses	(64000)
Net operating income	$63110

4A)

Super-variable costing net operating income (loss)	$11600
Add: Direct labor costs deferred in inventory under variable costing (24000-22300)*$14.50	24650
Variable costing net operating income (loss)	$36250

4B)

Super-variable costing net operating income (loss)	$11600
Add: Direct labor cost and fixed manufacturing costs deferred in inventory under absorption costing (24000-22300)*$30.30	51510
Absorption costing net operating income (loss)	$63110

Direct labor and fixed manufacturing cost per unit= $14.50+15.80= $30.30