Question

Dance Creations manufactures authentic Hawaiian hula skirts that are purchased for traditional Hawaiian celebrations, costume parties, and other functions. During its first year of business, the company incurred the following costs:    

Variable Cost per Hula Skirt
Direct materials	$	10.20
Direct labor		4.00
Variable manufacturing overhead		1.15
Variable selling and administrative expenses		.45
Fixed Cost per Month
Fixed manufacturing overhead	$	16,800
Fixed selling and administrative expenses		5,550

Dance Creations charges $33 for each skirt that it sells. During the first month of operation, it made 1,600 skirts and sold 1,495.    

Required:
1. Assuming Dance Creations uses variable costing, calculate the variable manufacturing cost per unit for last month. (Round your answer to 2 decimal places.)

         

2. Complete a variable costing income statement for last month. (Round your answers to 2 decimal places.)

         

3. Assuming Dance Creations uses full absorption costing, calculate the full manufacturing cost per unit for last month. (Round your intermediate calculations to 2 decimal places. Round your answer to 2 decimal places.)



4. Complete a full absorption costing income statement. (Round your intermediate calculations to 2 decimal places. Round your answers to 2 decimal places.)



6. Suppose next month Dance Creations expects to produce 1,200 hula skirts and sell 1,300. Without any calculations, decide whether variable or full absorption costing will show a higher profit.

	Full Absorption Costing
	Variable Costing

Answer 1

ANSWER

)	Total variable mfg cost/unit
	direct materials	10.20
	direct labor	4.00
	variable MOH	1.15
		15.35	answer
2)	Variable costing income statement
	Sales (1,495*33)		49,335.00
	cost of goods sold (1,495*15.35)		22,948.25
	variable selling expense (1,495*.45)		672.75
	contribution margin		25,714.00
	Fixed exoense
	FMOH	16,800.00
	Selling & adm expense	5,550.00
	total fixed expense		22,350.00
	Net income		3,364.00
3)	full manufacturing cost
	direct materials	10.20
	direct labor	4.00
	variable MOH	1.15
	Fixed MOH 16,800/1600	10.5
		25.85	answer
4)	income statement
	sales		49,335.00
	cost of goods sold (1,495*25.85)		38,645.75
	gross profit		10,689.25
	Selling expense
	Variable	672.75
	Fixed	5,550
	total selling expense		6,222.75
	Net income		4,466.50
5)	Variable

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