Question

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		$10.20
Direct labor		$4.69
Variable manufacturing overhead		$7.89
Variable selling and administrative expenses		$5.30
Fixed Costs per Year
Fixed manufacturing overhead		$323,000
Fixed selling and administrative expenses		$285,736

Siren Company sells the fishing lures for $34.00. During 2020, the company sold 81,000 lures and produced 95,000 lures.

Assuming the company uses variable costing, calculate Siren’s manufacturing cost per unit for 2020. (Round answer to 2 decimal places, e.g. 10.50.)

1. Manufacturing cost per unit $
2. Prepare a variable costing income statement for 2020.

Answer 1

a) Siren’s manufacturing cost per unit for 2020 is calculated as follows:

	$
Direct Material	10.20
Direct Labor	4.69
Variable Manufacturing Overhead	7.89
Manufacturing cost per unit	$22.78

Siren’s manufacturing cost per unit for 2020 is $22.78.

b) A variable costing income statement for 2020 is prepared as follows:

                                                     Income statement

                                                 For the year ended 2020

                                                     Variable costing

	$	$
Sale ( 81,000 * $34)		2,754,000
Less: Variable Expenses:
Variable cost of goods sold (81,000 * $22.78)	1,845,180
Variable selling and administrative expenses (81,000 * $5.30)	429,300
Total Variable Expenses:		2,274,480
Contribution Margin		479,520
Fixed Cost:
Fixed manufacturing overhead	323,000
Fixed selling and administrative expenses	285,736
Total Fixed Cost:		608,736
Net Income		$129,216