Question

Variable costs per unit:

Direct materials       $4

Direct labor             $11

Variable manufacturing overhead      $4

Variable selling and administrative     $2

Total variable cost per unit                 $21

Fixed costs per month:

Fixed manufacturing overhead          $63,000

Fixed selling and administrative        $169,000

Total fixed cost per month                 $232,000

The product sells for $49 per unit. Production and sales data for July and August, the first two months of operations, follow:

                  Units Produced             Units Sold

July                  21,000                      17,000

August             21,000                      25,000

The company's accounting department has prepared the following absorption costing income statements for July and August:

                         

                                                        July                     August

Sales                                             $833,000             $1,125,000

Cost of goods sold                        $374,000             $550,000

Gross margin                                $459,000             $675,000

Selling and admin. expenses       $203,000              $219,000

Net operating income                   $256,000              $456,000

Required:

1) Determine the unit product cost under:

a. Absorption costing

b. Variable costing

2) Prepare variable costing income statements for July and August.

3) Reconcile the variable costing and absorption costing net incomes.