Question

$13 Variable cost per unit: Direct materials Fixed costs per year: Direct labor Fixed manufacturing overhead Fixed selling and administrative expenses $750,000 $420,000 $110,000 The company does not incur any variable manufacturing overhead costs or variable selling and administrative expenses. During its first year of operations, Lyons produced 60,000 units and sold 52,000 units. The selling price of the company's product is $40 per unit. Required: 1. Assume the company uses super-variable costing: b. Compute the unit product cost for the year. c. Prepare an income statement for the year. 4. Assume the company uses a variable costing system that assigns $12.50 of direct labor cost to each unit produced: e. Compute the unit product cost for the year. f. Prepare an income statement for the year.

Answer 1

Answer -

1. Answer -

b.

Unit product cost for the year = $13 per unit

Explanation:

Under super-variable costing, only total variable costs are considered as product cost.

Here, only direct materials are given as variable cost.

Therefore,

Unit product cost for the year = Direct materials cost per unit

Unit product cost for the year = $13

c.

Super-Variable Costing Income Statement
Sales		$2080000
Variable cost of goods sold		$676000
Contribution margin		$1404000
Fixed expenses:
Direct labor	$750000
Fixed manufacturing overhead	$420000
Fixed selling and administrative expenses	$110000
Total fixed expenses		$1280000
Net operating income		$124000

Calculation:

1. Sales:

= Sales in units * Selling price per unit

= 52000 units * $40 per unit

= $2080000

2. Variable cost of goods sold:

= Sales in units * Direct materials cost per unit

= 52000 units * $13 per unit

= $676000

3. Contribution margin:

= Sales - Variable cost of goods sold

= $2080000 - $676000

= $1404000

4. Total fixed expenses:

= Direct labor + Fixed manufacturing overhead + Fixed selling and administrative expenses

= $750000 + $420000 + $110000

= $1280000

5. Net operating income:

= Contribution margin - Total fixed expenses

= $1404000 - $1280000

= $124000

4. Answer -

e.

Unit product cost for the year = $25.50 per unit

Explanation:

Under variable costing system product costs includes only variable manufacturing costs such as variable direct materials, variable direct labor and variable manufacturing overhead costs.

Here, direct materials and direct labor cost are given as variable costs.

Therefore,

Unit product cost for the year = Direct materials cost per unit + Direct labor cost per unit

Unit product cost for the year = $13 + $12.50

Unit product cost for the year = $25.50

f.

Variable Costing Income Statement
Sales		$2080000
Variable cost of goods sold		$1326000
Contribution margin		$754000
Fixed expenses:
Fixed manufacturing overhead	$420000
Fixed selling and administrative expenses	$110000
Total fixed expenses		$530000
Net operating income		$224000

Calculation:

1. Sales:

= Sales in units * Selling price per unit

= 52000 units * $40 per unit

= $2080000

2. Variable cost of goods sold:

= Sales in units * [Direct materials cost per unit + Direct labor cost per unit]

= 52000 units * [$13 per unit + 12.50 per unit]

= $1326000

3. Contribution margin:

= Sales - Variable cost of goods sold

= $2080000 - $1326000

= $754000

4. Total fixed expenses:

= Fixed manufacturing overhead + Fixed selling and administrative expenses

= $420000 + $110000

= $530000

5. Net operating income:

= Contribution margin - Total fixed expenses

= $754000 - $530000

= $224000