Question

Bracey Company manufactures and sells one product. The following information pertains to the company’s first year of operations:

Variable cost per unit:
Direct materials	$	35
Fixed costs per year:
Direct labor	$	518,000
Fixed manufacturing overhead	$	464,800
Fixed selling and administrative expenses	$	80,000

The company does not incur any variable manufacturing overhead costs or variable selling and administrative expenses. During its first year of operations, Bracey produced 28,000 units and sold 25,500 units. The selling price of the company’s product is $77 per unit.

Required:

1. Assume the company uses super-variable costing:

a. Compute the unit product cost for the year.

b. Prepare an income statement for the year.

2. Assume the company uses a variable costing system that assigns $18.50 of direct labor cost to each unit produced:

a. Compute the unit product cost for the year.

b. Prepare an income statement for the year.

3. Assume the company uses an absorption costing system that assigns $18.50 of direct labor cost and $16.60 of fixed manufacturing overhead cost to each unit produced:

a. Compute the unit product cost for the year.

b. Prepare an income statement for the year.

4a. Reconcile the difference between the super-variable costing and variable costing net operating incomes.

4b. Reconcile the difference between the super-variable costing and absorption costing net operating incomes.

Answer 1

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