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	$	31
Fixed costs per year:
Direct labor	$	429,000
Fixed manufacturing overhead	$	421,200
Fixed selling and administrative expenses	$	72,000

The company does not incur any variable manufacturing overhead costs or variable selling and administrative expenses. During its first year of operations, Bracey produced 26,000 units and sold 23,900 units. The selling price of the company’s product is $70 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 $16.50 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 $16.50 of direct labor cost and $16.20 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

1	Under super variable costing,Only variable cost are considered as the product cost
a.	Unit product cost			$
	Direct materials			31
	Unit product cost			31
b.	Income statement:
	Sales	(23900*70)				1673000
	Less: Cost of goods sold (23900*31)					740900
	Gross profit					932100
	Less:
	Direct labor				4,29,000
	Fixed manufacturing overhead				4,21,200
	Fixed selling and administrative expenses				72,000	9,22,200
	Net income					9,900
2
a.	Unit product cost			$
	Direct materials			31
	Direct labor			16.5
	Unit product cost			47.5
b.	Income statement:
	Sales	(23900*70)				1673000
	Less: Cost of goods sold (23900*47.5)					1135250
	Gross profit					537750
	Less:
	Fixed manufacturing overhead				4,21,200
	Fixed selling and administrative expenses				72,000	4,93,200
	Net income					44,550
3
a.	Unit product cost			$
	Direct materials			31
	Direct labor			16.5
	Fixed manufacturing overhead			16.2
	Unit product cost			63.7
b.	Income statement:
	Sales	(23900*70)				1673000
	Less: Cost of goods sold (23900*63.7)					1522430
	Gross profit					150570
	Less:
	Fixed selling and administrative expenses					72,000
	Net income					78,570
4a.	Reconcilation
	Net income as per super variable costing					9900
	Add: Labor cost involved in the inventory
	(26000-23900)*16.50					34650
	Net income as per variable costing					44550
4b.	Reconcilation
	Net income as per variable costing						44550
	Add:Fixed manufacturing overhead involved in the inventory
	(26000-23900)*16.20						34020
	Net income as per absorption costing						78570