Question

Grainger Company produces only one product and sells that product for $110 per unit. Cost information for the product is as follows:

Direct Material	$15	per Unit
Direct Labor	$25	per Unit
Variable Overhead	$5	per Unit
Fixed Overhead	$33,500

Selling expenses are $3 per unit and are all variable. Administrative expenses of $15,000 are all fixed. Grainger produced 5,000 units; sold 4,000; and had no beginning inventory.

A. Compute net income under

i. Absorption Costing $

ii. Variable Costing    $

B. Which costing method provide higher net income? By how much?

The   method provided more net income by $ .

Answer 1

Answers Net income Absorption Costing 206200 Varaible costing 199500 The Abosption costing Method Provided More net income By $ 6700

Calculation of Unit cost Under Absorption Costing Direct Material Direct Labour Variable Manufacturing Overhead Fixed Manufacturing Over head (33500/5000) Unit Product Cost 15.00 25.00 5.00 6.70 51.70 Absorption Costing Unit Product Cost 51.70 Income Statement Under Absorption Costing Sales (4000*110) Cost of Goods Sold (4000*51.70) Gross Margin Total Selling and Administrative Overheads (Fixed +Variable), Net Operating Income 440000 206800 233200 27000 206200

45 45 2) Assuming the Firm Using the Variable Cositng Variable Costing Calculation of Unit cost Under Variable Costing Direct Material Direct Labour Variable Manufacturing Overhead Unit Product Cost Variable Costing Unit Product Cost Variable Costing income Statement Sales (4000*110) LESS: Variable Expense Variable Cost of Goods Sold (40000*45) Variable Selling and Administrative Expense(4000*3) Total Varible Expenses Total Contribution Margin Less:Fixed Expenses Fixed manufacturing Overheads Fixed Selling and Administrative Expenses Total fixed Expenses Net operating income (loss) 440000 180000 12000 192000 248000 33500 15000 48500 199500