Question

Tampa Company manufactures and sells one product. The following information pertains to each of the company's first three years of operations:
Variable costs per unit:
Manufacturing: Direct materials $27
Direct labor $14
Variable manufacturing overhead $6
Variable selling and administrative $1
Fixed costs per year:
Fixed manufacturing overhead $510,000
Fixed selling and administrative expenses $210,000
During its first year of operations, Haas produced 60,000 units and sold 60,000 units. During its second year of operations, it produced 75,000 units and sold 50,000 units. In its third year, Haas produced 40,000 units and sold 65,000 units. The selling price of the company's product is $60 per unit.
1) Assume the company uses variable costing:
a. Compute the unit product cost for Year 1, Year 2, and Year 3.
b. Prepare an income statement for Year 1, Year 2, and Year 3.
2) Assume the company uses absorption costing:
a. Compute the unit product cost for Year 1, Year 2, and Year 3.
b. Prepare an income statement for Year 1, Year 2, and Year 3.

Answer 1

Variable costs change based on the amount of output produced. Variable costs may include labor, commissions, and raw materials.

Fixed costs remain the same regardless of production output. Fixed costs may include lease and rental payments, insurance, and interest payments.

What are variable costs examples?

Variable costs are costs that change as the volume changes. Examples of variable costs are raw materials, piece-rate labor, production supplies, commissions, delivery costs, packaging supplies, and credit card fees. In some accounting statements, the Variable costs of production are called the “Cost of Goods Sold.”

What is fixed cost with example?

Examples of Fixed Costs

Fixed costs include any number of expenses, including rental lease payments, salaries, insurance, property taxes, interest expenses, depreciation, and potentially some utilities. For instance, someone who starts a new business would likely begin with fixed costs for rent and management salaries.

Learn more about variable and fixed costs here:

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