Question

Tec Industries manufactures and sells one product. The following information pertains to each of the company’s first two years of operations:

Variable costs per unit: Manufacturing: Direct Materials $ 35 Direct Labor $ 25 Variable manufacturing overhead $ 7 Variable Selling and administrative $ 5 Fixed costs per year: Fixed manufacturing overhead $ 320,000 Fixed selling and administrative expenses $ 125,000

During its first year of operations, BIA produced 40,000 units and sold 30,000 units. During its second year of operations, BIA produced 40,000 and sold 50,000 units. The selling price of the company’s product is $100 per unit.

1) Assume the company uses Variable Costing.

a. Compute the unit product cost for Year 1 and Year 2.

b. Prepare an income statement for Year 1 and Year 2 using Variable Costing.

PLEASE SHOW ALL WORK!!

Answer 1

Variable costing -Unit cost calculation Income Statement Variable costing 1 a) Particulars Yearl Year 2 Particulars Year1 Year 2 A Sales ,000,000 $ 5,000,000 Direct Material Direct labor Variable manufacturing overhead $3535 $25 25 (30,000x100) (50,000x100) Variable Expense B Variable cost of Goods Sold( $ 67 per unit)$ 2,010,000 3,350,000 250,000 2,160,0003,600,000 840,000 1,400,000 (30,000x67) (50,000x67) Variable costing- Unit Product Cost $67 $ 67 C Variable Selling & administrative($5 per unit) $ 150,000 $ (30,000x5) (50,000x5) Note D Total variable expense (B+C) Variable Selling and administrative cost are not treated as Product cost E Contribution Margin (A-D) These expenses are always treated as period costs Fixed Expense F Fixed Manufacturing Over Head G Fixed Selling And Administrative Expense 320,000 $ 320,000 125,000 125,000$ 445,000 $ 395,000 S H Total Fixed expense (F+G) 445,000 I Net Operating income (E-H) 955,000