Question

E6-17 (LO 5)  Siren Company builds custom fishing lures for sporting goods stores. In its first year of operations, 2020, the company incurred the following costs.

Variable Costs per Unit
Direct materials	$7.50
Direct labor	$3.45
Variable manufacturing overhead	$5.80
Variable selling and administrative expenses	$3.90
Fixed Costs per Year
Fixed manufacturing overhead	$225,000
Fixed selling and administrative expenses	$210,100

Siren Company sells the fishing lures for $25. During 2020, the company sold 80,000 lures and produced 90,000 lures.

Instructions:

a.   Assuming the company uses variable costing, calculate Siren's manufacturing cost per unit for 2020.

b. Prepare a variable costing income statement for 2020.

c. Assuming the company uses absorption costing, calculate Siren's manufacturing cost per unit for 2020.

d. Prepare an absorption costing income statement for 2020.

Answer 1

a.

Calculation of manufacturing cost per unit under Variable Costing
Direct materials	7.50
Direct labor	3.45
Variable manufacturing overhead	5.80
Manufacturing cost per unit	$17

b.

Siren Company
Variable costing Income Statement
Sales (80,000 x 25)		$2,000,000
Less: Variable expense:
Direct materials ( 80,000 x 7.50)	600,000
Direct labor ( 80,000 x 3.45)	276,000
Variable manufacturing overhead (80,000 x 5.80)	464,000
Variable selling and administrative expenses (80,000 x 3.90)	312,000
Total Variable expenses		-1,652,000
Contribution Margin		$348,000
Less: Fixed expense:
Fixed manufacturing overhead	225,000
Fixed selling and administrative expenses	210,100
Total fixed expenses		-435,100
Net Loss		($87,100)

c.

Calculation of manufacturing cost per unit under Absorption Costing
Direct materials	7.50
Direct labor	3.45
Variable manufacturing overhead	5.80
Fixed manufacturing overhead ( 225,000/90,000)	2.50
Manufacturing cost per unit	$19

d.

Siren Company
Absorption Costing Income Statement
Sales (80,000 x 25)		$2,000,000
Cost of goods sold:
Direct materials ( 90,000 x 7.50)	675,000
Direct labor ( 90,000 x 3.45)	310,500
Variable manufacturing overhead (90,000 x 5.80)	522,000
Fixed manufacturing overhead	225,000
Cost of goods manufactured	1,732,500
Less: Ending inventory (1,732,500 x 10,000/90,000)	-192,500
Cost of goods sold		-1,540,000
Gross profit		$460,000
Operating expenses:
Variable selling and administrative expenses (80,000 x 3.90)	312,000
Fixed selling and administrative expenses	210,100
Total operating expense		-522,100
Net Loss		($62,100)

Kindly comment if you need further assistance.

Thanks‼!