Problem 6-18B Variable and Absorption Costing Unit Product Costs and Income Statements; Explanation of Difference in...

Problem 6-18B Variable and Absorption Costing Unit Product Costs and Income Statements; Explanation of Difference in Net Operating Income [LO6-1, LO6-2, LO6-3]

McCracken Aerial, Inc., produces and sells a unique type of TV antenna. The company has just opened a new plant to manufacture the antenna, and the following cost and revenue data have been provided for the first month of the plant’s operation:


Beginning inventory		0
Units produced		51,750
Units sold		45,000
Selling price per unit	$	70
Selling and administrative expenses:
Variable per unit	$	6
Fixed (total)	$	555,000
Manufacturing costs
Direct materials cost per unit	$	14.0
Direct labor cost per unit	$	7.0
Variable manufacturing overhead cost per unit	$	1
Fixed manufacturing overhead cost (total)	$	776,250

Because the new antenna is unique in design, management is anxious to see how profitable it will be and has asked that an income statement be prepared for the month.

Required:

1.	Assume that the company uses absorption costing.

a.	Determine the unit product cost. (Do not round intermediate calculations and round your final answer to 1 decimal place.)

b.	Prepare an income statement for the month.

2.	Assume that the company uses variable costing.

a.	Determine the unit product cost. (Do not round intermediate calculations and round your final answer to 1 decimal place.)

b.	Prepare a contribution format income statement for the month.

Solutions

Expert Solution

1a.

	Absorption costing
Direct materials	14.0
Direct labor	7.0
Variable manufacturing overhead	1.0
Fixed manufacturing overhead ($776250/51750)	15.0
Unit product cost $	37.0

1b.

McCracken Aerial, Inc.
Income Statement (Absorption Costing)
Sales (45000 x $70)		3150000
Cost of goods sold (45000 x $37)		1665000
Gross profit		1485000
Selling and administrative expenses
Variable (45000 x $6)	270000
Fixed	555000
Total selling and administrative expenses		825000
Net operating income $		660000

2a.

	Variable costing
Direct materials	14.0
Direct labor	7.0
Variable manufacturing overhead	1.0
Unit product cost $	22.0

2b.

McCracken Aerial, Inc.
Income Statement (Variable Costing)
Sales $ (45000 x $70)		3150000
Less: Variable costs
Direct materials (45000 x $14)	630000
Direct labor (45000 x $7)	315000
Variable manufacturing overhead (45000 x $1)	45000
Variable selling and aministrative (45000 x $6)	270000
Total variable costs		1260000
Contribution margin		1890000
Less: Fixed costs
Manufacturing overhead	776250
Selling and administrative overhead	555000
Total fixed costs		1331250
Net operating income $		558750

ekkarill92 answered 1 year ago

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