Question

Chapter 2 P2: Scott Company has the following information from last year. Scott Company produced 10,000 units, out of which 9,100 were sold for $50 each. Direct materials Direct labor Variable manufacturing overhead$1.50 per unit Variable selling and administrative costs Fixed manufacturing overhead $6.00 per unit $2.00 per unit $3.00 per unit $40,000 Fixed selling and administrative costs$50,000 1. 2. Determine the net income under absorption (full) costing. Determine the net income under variable (direct) costing.

Answer 1

Scott Company
Income Statement under absorbtion Costing		Units sold 9100
	Cost per unit	Total Cost
Revenue	50	$4,55,000.00
Less:
Direct Material	$             6.00	$   54,600.00
Direct labour	$             2.00	$   18,200.00
Variable manufacturing overhead	$             1.50	$   13,650.00
Fixed manufacturing overhead = 40000/10000	$             4.00	$   36,400.00
Gross margin	$           36.50	$3,32,150.00
Less:
Variable Selling Expense	$             3.00	$   27,300.00
Fixed Selling Expense = 50000/10000	$             5.00	$   45,500.00
Net Operating Income	$           28.50	$2,59,350.00
Scott Company
Income Statement under Variable Costing		Units sold 9100
	Cost per unit	Total Cost
Revenue	50	$4,55,000.00
Less:
Direct Material	$             6.00	$   54,600.00
Direct labour	$             2.00	$   18,200.00
Variable manufacturing overhead	$             1.50	$   13,650.00
Variable Selling Expense	$             3.00	$   27,300.00
Contribution margin	$           37.50	$3,41,250.00
Less:
Fixed manufacturing overhead =		$   40,000.00
Fixed Selling Expense		$   50,000.00
Net Operating Income		$2,51,250.00