Question

The Dorset Corporation produces and sells a single product. The following data refer to the year just completed:

Beginning inventory		0
Units produced		28,000
Units sold		24,000
Selling price per unit	$	466
Selling and administrative expenses:
Variable per unit	$	21
Fixed per year	$	336,000
Manufacturing costs:
Direct materials cost per unit	$	296
Direct labor cost per unit	$	57
Variable manufacturing overhead cost per unit	$	34
Fixed manufacturing overhead per year	$	448,000

Assume that direct labor is a variable cost.

Required:

a. Compute the unit product cost under both the absorption costing and variable costing approaches.

b. Prepare an income statement for the year using absorption costing.

c. Prepare an income statement for the year using variable costing.

d. Reconcile the absorption costing and variable costing net operating income figures in (b) and (c) above.

Answer 1