Question

#26

Cool Sky reports the following costing data on its product for its first year of operations. During this first year, the company produced 42,000 units and sold 34,000 units at a price of $120 per unit.

Manufacturing costs
Direct materials per unit	$	48
Direct labor per unit	$	18
Variable overhead per unit	$	6
Fixed overhead for the year	$	420,000
Selling and administrative cost
Variable selling and administrative cost per unit	$	12
Fixed selling and administrative cost per year	$	110,000

26.

value:
2.00 points

Required information

1a.	Assume the company uses absorption costing. Determine its product cost per unit.
	Per unit product cost using: Absorption costing Cost per unit

      

Hints

1b.	Assume the company uses absorption costing. Prepare its income statement for the year under absorption costing.
	COOL SKY Absorption Costing Income Statement Net income (loss)

2a.	Assume the company uses variable costing. Determine its product cost per unit.
	Per unit product cost using: Variable costing Cost per unit

2b.	Assume the company uses variable costing. Prepare its income statement for the year under variable costing. COOL SKY Variable Costing Income Statement Net income (loss)

      

Answer 1

1 a)

Cost per unit using absorption costing
Direct material per unit	$48
Direct labor per unit	$18
Variable overhead	$6
Fixed overhead ($420,000 / 42,000 units)	$10
Total product cost per unit	$82

b)

Cool Sky

Absorbing Costing Income Statement

Sales (34,000 units * $120 per unit)	$4,080,000
Cost of goods sold (34,000 units * 82 per unit)	$2,788,000
Contribution margin	$2,292,000
Selling and administrative expenses*	$518,000
Net income	$1,774,000

*Selling and administrative expenses = Variable(34,000 * $12) + Fixed($110,000) = $518,000

2 a)

Direct material per unit	$48
Direct labor per unit	$18
Variable overhead	$6
Total product cost per unit	$72

b)

COOL SKY

Variable Costing Income Statement

Sales (34,000 units * $120 per unit)		$4,080,000
Variable expense
Variable production costs(34,000 units * $72 per unit)	$2,448,000
Variable selling and administra±ve cost(34,000 units * $12 per unit)	$408,000
Total Variable expenses		$2,856,000
Contribution margin		$1,224,000
Fixed expenses
Fixed overhead	$420,000
Fixed selling and administrative cost	$110,000
Total fxed expenses		$530,000
Net income		$694,000