Question

Exercise 6-9 Part 1a

Cool Sky reports the following costing data on its product for its first year of operations. During this first year, the company produced 40,000 units and sold 32,000 units at a price of $140 per unit.

Manufacturing costs
Direct materials per unit	$	60
Direct labor per unit	$	22
Variable overhead per unit	$	8
Fixed overhead for the year	$	480,000
Selling and administrative costs
Variable selling and administrative cost per unit	$	9
Fixed selling and administrative cost per year	$	105,000

	Per unit product cost using: Absorption costing Cost per unit

	COOL SKY Absorption Costing Income Statement 0 0 Net income (loss)

	Per unit product cost using: Variable costing Cost per unit

	COOL SKY Variable Costing Income Statement Net income (loss)

Answer 1

Construct The Absorption Costing Unit Product Cost
Direct Material				60
Direct labour				22
Variable Manufacturing overheads				8
Fixed Manufacturing overheads				12.00	(480000/40000)
Absorption costing unit prroduct cost				102.00
Construct the Absorption Costing Income Statement
Sales				$4,480,000
Cost of Goods sold				3264000
Gross Margin				$1,216,000
Selling and distribution expense
Variable Sselling (32000*9)				288000
Fixed selling expense				105000
Net operating income				823,000
Compute the Variable costing Unit Product cost
Direct Material				60
Direct labour				22
Variable Manufacturing overheads				8
Variable costing unit prroduct cost				90
Construct The Variable Costing Income Statement under FIFO
				YEAR 1
Sales					4,480,000
Less: Variable cost
variable cost of goods sold				2,880,000
Variable selling expense				288,000	3,168,000
Contribution margin					1,312,000
Fixed expense:
Fixed Manufacturing overheads					480,000
Fixed selling expense					105,000
Net operating Income					727,000