Question

Baxtell Company manufactures and sells a single product. The following costs were incurred during the company’s first year of operations: Variable costs per unit: Manufacturing: Direct materials $ 32 Direct labour 22 Variable manufacturing overhead 6 Variable selling and administrative 6 Fixed costs per year: Fixed manufacturing overhead 375,000 Fixed selling and administrative expense 157,200 During the year, the company produced 31,250 units and sold 26,200 units. The selling price of the company’s product is $88 per unit. Required: 1. Assume that the company uses absorption costing.

a. Compute the unit product cost.

b. Prepare an income statement for the year. (Do not leave any empty spaces; input a 0 wherever it is required.)

2. Assume that the company uses variable costing. a. Compute the unit product cost. b. Prepare an income statement for the year. (Do not leave any empty spaces; input a 0 wherever it is required.)

Answer 1

Part a

Absorption Costing	Amount
Direct Material	32
Direct Labor	22
Variable Overhead	6
Fixed Overhead	12
Unit Product cost	72

Part b

Absorption Costing Income Statement
Sales		2305600
Beginning Invenotry
Add: Cost of goods manufactured	2250000
Goods available for sale	2250000
Less: Ending Inventory	363600
Cost of goods sold	1886400
Gross Profit		419200
Selling and administrative cost	314400
Net operating income		104800

Answer 2

Variable Costing	Amount
Direct Material	32
Direct Labor	22
Variable Overhead	6
Unit Product cost	60

Variable Costing income statement
Sales		2305600
Less: Variable Expenses
Beginning Invenotry
Add: Cost of goods manufactured	1875000
Goods available for sale	1875000
Less: Ending Inventory	303000
Variable cost of goods sold	1572000
Variable selling and administrative cost	157200
Contribution Margin		576400
Less: Fixed Expenses
Manufacturing Overhead	375000
Selling and administrative	157200
Net operating income		44200