Solution:
1.a.)
Unit product cost under absorption costing method:
Absorption costing = Direct Materials + Direct labor + Total Manufacturing Overhead Per Unit
Direct Materials | $6 |
Direct labor | $9 |
Variable manufacturing overhead | $3 |
Fixed manufacturing overhead per unit ($300,000 ÷ 25,000 units) | $12 |
Unit product cost under absorption costing | $30 |
1.b.)
The absorption costing income statement:
Sales ($50 × 20,000) | $1,000,000 |
Costs of goods sold ($30 × $20,000) | $600,000 |
Gross income | $400,000 |
Total selling and administrative expenses ($4 × 20,000 + $190,000) | $270,000 |
Net operating income | $130,000 |
2.a.) Unit product cost under variable costing:
Variable costing = Direct Materials + Direct labor + Variable Manufacturing Overhead
Direct Materials | $6 |
Direct labor | $9 |
Variable manufacturing overhead | $3 |
Unit product cost under variable costing | $18 |
2.b.)
Income Statement under Variable Costing:
Sales ($50 × 20,000 units) | $1,000,000 |
Variable expenses: | |
Variable cost of goods sold ($18 × 20,000 units) | $(360,000) |
Variable selling and administrative expenses ($4 × 20,000) | $(80,000) |
Total variable expenses | $(440,000) |
Contribution margin | $560,000 |
Fixed selling and administrative expenses | $(190,000) |
Fixed manufacturing overhead | $(300,000) |
Net income under variable costing | $70,000 |
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