Question

Lukin Corporation reports the following first year production cost information: Units produced Units sold Sales price Direct labor Direct materials Variable overhead Fixed overhead Operating expenses 62,000 units 59,000 units $350 per unit $41 per unit $15 per unit $9,300,000 in total $4,340,000 in total $1,000,000 a. Compute production cost per unit under variable costing. b. Compute production cost per unit under absorption costing. c. Determine the net income using variable costing. d. Determine the net income using absorption costing.

Answer 1

Solution Required a.: Computation of production cost per unit (Variable costing) Direct material cost per unit Direct labor cost per unit Variable O/H cost per unit ($9,300,000 / 62,000 units) Unit Product Cost Per Unit $15.00 $41.00 $150.00 $206.00 Unit Product Cost $206.00 Required b.: Computation of production cost per unit (absorption costing) Direct material cost per unit Direct labor cost per unit Variable O/H cost per unit ($9,300,000 / 62,000 units) Fixed O/H cost per unit ($4,340,000 / 62,000 units) Unit Product Cost Per Unit $15.00 $41.00 $150.00 $70.00 $276.00 Unit Product Cost $276.00 Required C.: Computation of net income (Variable costing) $20,650,000 $12,154,000 $8,496,000 Income Statement (Variable costing) Sales Revenue (59,000 units x $350) Variable expenses Cost of Goods Sold (59,000 units x $206) Contribution Margin Fixed expenses Fixed Overheads Operating expenses Total Fixed expenses Net income $4,340,000 $1,000,000 $5,340,000 $3,156,000 Required d.: Computation of net income (Absorption costing) Income Statement (Absorption costing) Sales Revenue (59,000 units x $350) Cost of Goods Sold (59,000 units x $276) Gross Profit Operating expenses Net income $20,650,000 $16,284,000 $4,366,000 $1,000,000 $3,366,000