Question

Cliffhangers Company had the following product information for March 2019:

Selling Price $149 per unit
Direct Materials $35 per unit
Direct Labor $29 per unit
Variable Manufacturing Overhead $13 per unit

Variable selling $6 per unit

  
Fixed Manufacturing Overhead . $129,000

Fixed Selling $164,000
Production 5,800 units
Sales (units) 4,400 units

REQUIRED:

1. What is the product cost per unit under absorption costing?

2. What is the product cost per unit under variable costing?

3. Prepare an income statement using absorption costing.

4. Prepare an income statement using variable costing.

Answer 1

Answer- a)-Unit product cost under Absorption costing:-Direct materials + Direct Labor+ Variable manufacturing overhead + fixed manufacturing overhead

=$35+$29+$13+$22 = $99 per unit

Explanation:- Unit fixed manufacturing overhead= fixed manufacturing overhead/No. of units produced

=$129000/5800 units =$22 per unit

b)-Unit product cost under Variable costing:-Direct materials + Direct Labor+ Variable manufacturing overhead

=$35+$29+$13 = $77 per unit

c)-

CLIFFHANGERS COMPANY
Income statement (Using absorption costing approach)
Particulars			Amount
			$
Sales (a)	4400 units*$149 per unit		655600
Less:- Variable cost of goods sold (b)
Opening inventory
Add:- Variable cost of goods manufactured		575600
Direct materials	5800 units*$35 per unit	203000
Direct labor	5800 units*$29 per unit	168200
Variable manufacturing overhead	5800 units*$13 per unit	75400
Fixed manufacturing overhead		129000
Variable cost of goods available for sale		575600
Less:- Closing inventory	1400 units*$99 per unit	138600	437000
Gross contribution margin C= a-b			218600
Less:-Variable selling & administrative exp.	4400 units*$6 per unit		26400
Contribution margin			192200
Less:- Fixed costs
Selling & administrative exp.			164000
Net Income			28200

d)-

CLIFFHANGERS COMPANY
Income statement (Using variable costing approach)
Particulars			Amount
			$
Sales (a)	4400 units*$149 per unit		655600
Less:- Variable cost of goods sold (b)
Opening inventory		NIL
Add:- Variable cost of goods manufactured		446600
Direct materials	5800 units*$35 per unit	203000
Direct labor	5800 units*$29 per unit	168200
Variable manufacturing overhead	5800 units*$13 per unit	75400
Variable cost of goods available for sale		446600
Less:- Closing inventory	1400 units*$77 per unit	107800	338800
Gross contribution margin C= a-b			316800
Less:-Variable selling & administrative exp.	4400 units*$6 per unit		26400
Contribution margin			290400
Less:- Fixed costs
Manufacturing overhead			129000
Selling & administrative exp.			164000
Net Income			-2600