Question

Bracey Company manufactures and sells one product. The following information pertains to the company’s first year of operations:

Variable cost per unit:
Direct materials	$	37
Fixed costs per year:
Direct labor	$	565,500
Fixed manufacturing overhead	$	487,200
Fixed selling and administrative expenses	$	84,000

The company does not incur any variable manufacturing overhead costs or variable selling and administrative expenses. During its first year of operations, Bracey produced 29,000 units and sold 26,300 units. The selling price of the company’s product is $81 per unit.

Required:

1. Assume the company uses super-variable costing:

a. Compute the unit product cost for the year.

b. Prepare an income statement for the year.

2. Assume the company uses a variable costing system that assigns $19.50 of direct labor cost to each unit produced:

a. Compute the unit product cost for the year.

b. Prepare an income statement for the year.

3. Assume the company uses an absorption costing system that assigns $19.50 of direct labor cost and $16.80 of fixed manufacturing overhead cost to each unit produced:

a. Compute the unit product cost for the year.

b. Prepare an income statement for the year.

4a. Reconcile the difference between the super-variable costing and variable costing net operating incomes.

4b. Reconcile the difference between the super-variable costing and absorption costing net operating incomes.

Complete this question by entering your answers in the tabs below. Req 1A Req 1B Req 2A Req 2B Req 3A Req 3B Req 4A Req 4B Compute the unit product cost for the year. Assume the company uses super-variable costing. Unit product cost Req 1A > Req 1B

Answer 1

Part-1

Super Variale   Product Cost
	Year-1
Direct material	$37.00
Unit Product cost	$37.00

The Super Variable Costing Income Statement
	Year-1
No. of Unit Sold	26300
Sales@81	$2,130,300
Less: Variable cost
variable cost of goods sold @37	$973,100
Contribution margin	$1,157,200
Fixed expense:
Fixed Manufacturing overheads	$487,200
Fixed selling expense	$84,000
Drect Laour	$565,500
Net operating Income	$20,500

Part-2

The Variable Costing Unit Product Cost
	Year-1
Direct material	$37.00
Direct Labour Cost (565500/29000)	$19.50
Unit Product cost	$56.50

The Variable Costing Income Statement
	Year-1
No. of Unit Sold	26300
Sales@81	$2,130,300
Less: Variable cost
variable cost of goods sold @56.50	$1,485,950
Contribution margin	$644,350
Fixed expense:
Fixed Manufacturing overheads	$487,200
Fixed selling expense	$84,000
Net operating Income	$73,150

Part-3

The Absorption Costing Unit Product Cost
	$
Direct Material	$37.00
Direct Labour Cost (565500/29000)	$19.50
Fixed Manufacturing overheads (487200/29000)	$16.80
Unit Product cost	$73.30

The Absorption Costing Income Statement
	$
No. of Unit Sold	26300
Sales@81	$2,130,300
Less: Cost of Goods sold @73.30	$1,927,790.00
Gross Margin	$202,510.00
Less: Selling and distribution expense
Fixed selling expense	$84,000
Net operating income	$118,510.00

Part-4

4(b) Reconciliation Statement of Income
	Year-1
Income under Super variable c osting	$20,500
Add: Direct labor deferred in inventory under Variable costing (2700*$19.50)	$52,650
Income under Variable Costing	$73,150
4(a) Reconciliation Statement of Income
	Year-1
Income under Super variable c osting	$20,500
Add: Direct labor deferred in inventory under Variable costing (2700*$19.50)	$52,650
Add: Fixed Overhead deferred in inventory under absorption costing (2700*$16.80)	$45,360
Income under Absorption Costing	$118,510