Question

Variable costs per unit: Manufacturing Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative Fixed costs per year: Fixed manufacturing overhead Fixed selling and administrative $ $ $ $ 10 4 1 1 $231,000 $141, eee During the year, the company produced 21,000 units and sold 17,000 units. The selling price of the company's product is $40 per unit. Required: 1. Assume that the company uses absorption costing: a. Compute the unit product cost. b. Prepare an income statement for the year. 2. Assume that the company uses variable costing a. Compute the unit product cost. b. Prepare an income statement for the year

Answer 1

Answer of Part 1-a:
Fixed Manufacturing Overhead per unit = Fixed Manufacturing Overhead / Units produced
Fixed Manufacturing Overhead per unit = $231,000 / 21,000
Fixed Manufacturing Overhead per unit = $11

Unit Product Cost = Direct Material per unit + Direct Labor per unit + Variable Manufacturing Overhead per unit + Fixed Manufacturing Overhead per unit
Unit Product Cost = $10 + $4 + $1 + $11
Unit Product Cost = $26

Answer of Part 1-b:

Absorption Costing Income Statement Sales Cost of Goods sold Gross Margin Selling and Administrative expenses Net Operating Income (Loss) 680,000 442,000 238,000 158,000 80,000 Calculation: Sales = 17,000 * $40 = $680,000 Cost of Goods sold = 17,000 * $26 = $442,000 Selling and Administrative expenses = $141,000 + (17,000 * $1) = $158,000

Answer of Part 2-a:
Unit Product Cost = Direct Material per unit + Direct Labor per unit + Variable Manufacturing Overhead per unit
Unit Product Cost = $10 + $4 + $1
Unit Product Cost = $15

Answer of Part 2-b:

680,000 255,000 17,000 Variable Costing Income Statement Sales Less: Variable Expenses Variable Cost of Goods sold Variable Selling Expense Total Variable Expenses Contribution Margin Less: Fixed Expenses Fixed Selling and Administrative Expenses Fixed Manufacturing Overhead Total Fixed Expenses Net Operating Income (Loss) 272,000 408,000 141,000 231,000 372,000 36,000 Calculation: Sales = 17,000 * $40 = $680,000 Variable Cost of Goods sold = 17,000 * $15 = $255,000 Variable Selling and Administrative expenses = 17,000 * $1 = $17,000