Question

Ch 06 Ex 6-9 A Saved Help Save & Exit Submit Check my work Required information [The following information applies to the questions displayed below.) Part 1 of 4 Cool Sky reports the following costing data on its product for its first year of operations. During this first year, the company produced 44,000 units and sold 36,000 units at a price of $120 per unit. points $ $ 48 18 Manufacturing costs Direct materials per unit Direct labor per unit Variable overhead per unit Fixed overhead for the year Selling and administrative costs Variable selling and administrative cost per unit Fixed selling and administrative cost per year $ 440,000 eBook Hint $ 11 $ 115,000 Ask Print References 1a. Assume the company uses absorption costing. Determine its product cost per unit. Per unit product cost using: Absorption costing Total cost per unit

Answer 1

Ans. 1 a	In Absorption costing method, the unit product cost is the sum of all manufacturing costs per unit
	whether it is fixed or variable.
	Unit product cost under Absorption Costing:
	Direct materials	$48.00
	Direct labor	$18.00
	Variable Overhead per unit	$6.00
	Fixed overhead per unit   ($440,000 / 44,000)	$10.00
	Product Cost per unit	$82.00
	*Fixed overhead per unit = Fixed overhead / Units produced
Ans. 1 b	COOL SKY
	Absorption Costing Income Statement
	PARTICULARS		Amount
	Sales   (36,000 * $120)		$4,320,000
	Less: Cost of goods sold
	Opening inventory	$0
	Add: Cost of goods manufactured (44,000*$82)	$3,608,000
	Cost of goods available for sale	$3,608,000
	Less: Ending inventory [(44,000 - 36,000) * $82]	-$656,000
	Cost of goods sold (total)		$2,952,000
	Gross margin		$1,368,000
	Selling & Administrative expenses:
	Fixed	$115,000
	Variable     (36,000 * $11)	$396,000
	Total Selling and administrative expenses		$511,000
	Net operating income		$857,000
	*Ending inventory   = (Units produced - Units sold) * Production cost per unit
Ans. 2 A	In variable costing method, the unit product cost is the sum of only variable
	manufacturing costs per unit
	Unit product cost under Variable Costing:
	Direct materials	$48.00
	Direct labor	$18.00
	Variable Overhead per unit	$6.00
	Total production cost per unit	$72.00
Ans. 2 b	COOL SKY
	Variable Costing Income Statement
	PARTICULARS		Amount
	Sales   (36,000 * $120)		$4,320,000
	Less: Variable cost of goods sold:
	Opening inventory	$0
	Add: Variable cost of goods manufactured (44,000 * $72)	$3,168,000
	Variable cost of goods available for sale	$3,168,000
	Less: Ending inventory [(44,000 - 36,000) * $72]	-$576,000
	Variable cost of goods sold		$2,592,000
	Gross Contribution Margin		$1,728,000
	Less: Variable Selling and Administrative Expenses (36,000 * $11)		$396,000
	Contribution Margin		$1,332,000
	Less: Fixed expenses:
	Fixed manufacturing overhead	$440,000
	Fixed selling and administrative expenses	$115,000	$555,000
	Net operating income		$777,000
	*Variable cost of goods manufactured = Units produced * Variable unit product cost