Question

$19 Variable cost per unit: Direct materials Fixed costs per year: Direct labor Fixed manufacturing overhead Fixed selling and administrative expenses $250,000 $300,000 $90,000 The company does not incur any variable manufacturing overhead costs or variable selling and administrative expenses. During its first year of operations, Bracey produced 20,000 units and sold 18,000 units. The selling price of the company's product is $55 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. 7. Assume the company uses an absorption costing system that assigns $12.50 of direct labor cost and $15.00 of fixed manufacturing overhead cost to each unit produced: h. Compute the unit product cost for the year.

Answer 1

1) Super-variable costing

b) Unit product cost under super-variable costing= Direct materials= $19

c)

Super-Variable Costing Income Statement
Sales (18000*$55)		$990000
Less: Variable cost of goods sold (18000*$19)		342000
Contribution margin		648000
Less: Fixed costs:
Fixed manufacturing overhead	300000
Fixed selling and administrative expenses	90000
Direct labor	250000	640000
Net operating income		$8000

4-e) Unit product cost under variable costing= Direct materials+Direct labor

= $19+12.50= $31.50

f)

Variable Costing Income Statement
Sales (18000*$55)		$990000
Less: Variable cost of goods sold (18000*$31.50)		567000
Contribution margin		423000
Less: Fixed expenses:
Fixed manufacturing overhead	300000
Fixed selling and administrative expenses	90000
Total fixed manufacturing overhead		390000
Net operating income		$33000

7-h) Unit product cost under absorption costing

Direct materials	$19
Direct labor	12.50
Fixed manufacturing overhead	15.00
Total unit product cost	$46.50

i)

Absorption Costing Income Statement
Sales (18000*$55)	$990000
Less: Cost of goods sold (18000*$46.50)	837000
Gross margin	153000
Less: Selling and administrative expenses	90000
Net operating income	$63000

10) Reconcile the difference between Super-variable costing and Variable costing

Super-variable costing net operating income (loss)	$8000
Add: Direct labor costs deferred in inventory under variable costing (20000-18000)*$12.50	25000
Variable costing net operating income (loss)	$33000

Reconcile the difference between Super-variable costing and Absorption costing

Super-variable costing net operating income (loss)	$8000
Add: Direct labor cost and fixed manufacturing costs deferred in inventory under absorption costing (20000-18000)*27.5	55000
Absorption costing net operating income (loss)	$63000

Direct labor and fixed manufacturing cost per unit= $12.50+15= $27.50