<u>Solution and Explanation:</u>
a.
Absorption costing
Direct material 40
Direct labor 25
Variable manufacturing overhead 20
Fixed manufacturing overhead (90,000/2,500) 36
Unit product cost $121
Unit product cost using absorption costing = $121
Variable costing
Direct material 40
Direct labor 25
Variable manufacturing overhead 20
Unit product cost $85
Unit product cost using variable costing = $85
b. Absorption costing income statement
Sales (2,000 x 200) 400,000
Cost of goods sold :
Direct material (2,000 x 40) 80,000
Direct labor (2,000 x 25) 50,000
Varoiable manufacturing overhead (2,000 x 20) 40,000
Fixed manufacturing overhead (90,000 x 2,000/2,500 72,000
Cost of goods sold -242,000
Gross profit 158,000
Operating expense :
Variable selling and administrative expense (2,000 x 15) 30,000
Fixed selling and administrative expense 75,000
Total operating expense -105,000
Net operating income $53,000
Variable costing income statement
Sales (2,000 x 200) 400,000
Variable cost :
Direct material 80,000
Direct labor 50,000
Varoiable manufacturing overhead 40,000
Variable selling and administrative expense 30,000
Total variable cost -200,000
Contribution margin 200,000
Fixed cost :
Fixed manufacturing overhead 90,000
Fixed selling and administrative expense 75,000
Total fixed cost -165,000
Net operating income $35,000
