Answer:
Results are below.
Explanation:
The <u>absorption costing </u>method includes all costs related to production, both fixed and variable. The unit product cost is calculated using direct material, direct labor, and total unitary manufacturing overhead.
The v<u>ariable costing </u>method incorporates all variable production costs (direct material, direct labor, and variable overhead).
<u>a) First, we need to calculate the unitary production cost under absorption costing:</u>
Unitary production cost= (575,000 / 50,000) + (80,000 / 50,000)
Unitary production cost= $13.1
<u>Now, the absorption costing income statement:</u>
Sales= 42,000*18= 756,000
COGS= 13.1*42,000= (550,200)
Gross profit= 205,800
Total Selling and administrative expenses= (45,500)
Net operating income= 160,300
<u>b) First, we need to calculate the total unitary variable cost:</u>
Total unitary variable cost= (575,000/50,000) + (35,000 / 42,000)
Total unitary variable cost= $12.33
<u>Now, the income statement:</u>
Sales= 756,000
Total variable cost= 12.33*42,000= (517,860)
Total contribution margin= 238,140
Fixed overhead= (80,000)
Fixed selling and administrative= (10,500)
Net operating income= 147,640