Question

Cool Sky reports the following costing data on its product for its first year of operations. During this first year, the company produced 44,000 units and sold 36,000 units at a price of $140 per unit. Manufacturing costs Direct materials per unit Direct labor per unit Variable overhead per unit Fixed overhead for the year $60 $22 8 $528,000 Selling and administrative cost Variable selling and administrative cost per unit Fixed selling and administrative cost per year $105,000
Assume the company uses absorption costing. Determine its product cost per unit.
Assume the company uses absorption costing. Prepare its income statement for the year under absorption costing.
Assume the company uses variable costing. Determine its product cost.
Prepare its income statement for the year under variable costing.

Answer 1

Answer:

Absorption Manufacturing Costs Per Unit  $ 102

Absorption Net  Income 771,000

Variable  Product Costs per unit = $ 90

Variable Net  Income 771,000

Explanation:

The difference between the absorption and variable costing is that fixed overheads are included in the product costs of absorption and they are excluded from the product costs of variable costing.

Cool Sky

Product Cost Per unit

Absorption Costing

Manufacturing costs

Direct materials per unit 44,000 *$60 = $ 2640,000

Direct labor per unit 44,000 *$22 = 968,000

Variable overhead  44,000 * 8= $ 352,000

Fixed overhead $528,000

Total Manufacturing Costs = $ 4488000

Manufacturing Costs Per Unit =  $ 4488000/ 44,000= $ 102

Cool Sky

Income Statement for the year

Absorption Costing

Sales 36,000 *$140 =  5040000

Manufacturing costs

Direct materials per unit 36,000 *$60 = $ 2160000

Direct labor per unit 36,000 *$22 = 792000

Variable overhead  36,000 * 8= $ 288000

Fixed overhead $528,000

Gross Profit  1272000

Selling and administrative cost

Variable selling and administrative 36,000 * 11= 396000

Fixed selling and administrative $105,000

Net  Income 771,000

Cool Sky

Product Cost Per unit

Variable Costing

Manufacturing costs

Direct materials per unit $60

Direct labor per unit $22

Variable overhead per unit   8

Variable Product  Costs per unit = $ 90

Cool Sky

Income Statement for the year

Variable Costing

Sales 36,000 *$140 =  5040,000

Manufacturing costs

Direct materials per unit 36,000 *$60 = $ 2160,000

Direct labor per unit 36,000 *$22 = 792,000

Variable overhead  36,000 * 8= $ 288,000

Variable selling and administrative 36,000 * 11= 396,000

Contribution Margin  1404,000

Less Fixed Costs

Fixed overhead $528,000

Fixed selling and administrative $105,000

Net  Income 771,000