Question

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 $140 per unit. Manufacturing costs Direct materials per unit Direct labor per unit Variable overhead per unit Fixed overhead for the year $60 $22 8 $528,000 Selling and administrative cost Variable selling and administrative cost per unit Fixed selling and administrative cost per year $105,000

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 $140 per unit.

    

Manufacturing costs
Direct materials per unit	$	60
Direct labor per unit	$	22
Variable overhead per unit	$	8
Fixed overhead for the year	$	528,000
Selling and administrative cost
Variable selling and administrative cost per unit	$	11
Fixed selling and administrative cost per year	$	105,000

Answer 1

Answer:

1

Cool Sky Company
Income Statement (Absorption Costing)
	Amount $	Amount$
Sales (36,000 units at $140)		5040000
Less: Cost of goods sold
Direct materials (36,000 units at $ 60)	2160000
Direct labor (36,000 units at $22)	792000
Variable overhead (36,000 units at $8)	288000
Fixed Overhead (36,000 units at $12)	432000
Cost of goods sold		3672000
Gross margin		1368000
Selling, general and administrative expenses:
Variable selling and administrative expenses (36,000 x $11)	396000
Fixed selling and administrative expenses	105000
Total selling, general and administrative expenses		501000
Net income (loss)		867000

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2-a

Assume that this company uses variable costing. Determine its unit product cost.

Variable costing
Per unit product cost using:	Amount$
Direct materials per unit	60
Direct labor per unit	22
Variable overhead per unit	8
Cost per unit	90

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2-b

Cool Sky Company
Variable Costing Income Statement
	Amount $	Amount $
Sales (36,000 units at $140)		5040000
Less: Variable costs
Variable production costs (36,000 x $90 per unit)	3240000
Variable selling and administrative expenses (36,000 x $11)	396000
Total variable costs		3636000
Contribution margin		1404000
Less: Fixed expenses
Fixed overhead costs	528000
Fixed selling and administrative expenses	105000
Total fixed expenses		633000
Net income (loss)		771000