Question

ance Creations manufactures authentic Hawaiian hula skirts that are purchased for traditional Hawaiian celebrations, costume parties, and other functions. During its first year of business, the company incurred the following costs:    

Variable Cost per Hula Skirt
Direct materials	$	9.60
Direct labor		3.40
Variable manufacturing overhead		1.05
Variable selling and administrative expenses		0.40
Fixed Cost per Month
Fixed manufacturing overhead	$	15,875
Fixed selling and administrative expenses		4,950

Dance Creations charges $30 for each skirt that it sells. During the first month of operation, it made 1,500 skirts and sold 1,375.

Required:
1. Assuming Dance Creations uses variable costing, calculate the variable manufacturing cost per unit for last month. (Round your answer to 2 decimal places.)



2. Complete a variable costing income statement for last month. (Round your answers to 2 decimal places.)



3. Assuming Dance Creations uses full absorption costing, calculate the full manufacturing cost per unit for last month. (Round your answer to 2 decimal places.)



4. Complete a full absorption costing income statement. (Round your intermediate calculations and the final answers to 2 decimal places.)

Answer 1

1. Assuming Dance Creations uses variable costing, calculate the variable manufacturing cost per unit for last month.

Direct material	9.60
Direct labour	3.40
Variable manufacturing overhead	1.05
Unit product cost	14.05

2. Complete a variable costing income statement for last month.

Sales (1375*30)		41250
Less; Variable cost of goods sold (1375*14.05)		19318.75
Manufacturing margin		21931.25
Less: Variable  selling and administrative expenses (1375*.40)		550
Contribution margin		21381.25
Less: Fixed cost
Fixed manufacturing overhead	15875
Fixed  selling and administrative expenses	4950
Total Fixed cost		20825
Net operating income		556.25

3) Assuming Dance Creations uses absorption costing

Direct material	9.60
Direct labour	3.40
Variable manufacturing overhead	1.05
Fixed manufacturing overhead (15875/1500)	10.58
Unit product cost	24.63

4. Complete a absorption costing income statement

Sales (1375*30)	41250
Less; cost of goods sold (1375*24.63)	33866.25
Gross profit	7383.75
Less:selling and administrative expenses (1375*.40+4950)	5500
Net operating income	1883.75