Answer:
<h2>Bracey Company</h2>
1. Assuming that Bracey Company uses super-variable costing:
a. Computation of the unit product cost for the year:
Unit product cost
= unit cost of direct materials = $19
b. Bracey Company Income Statement for the year ended December 31:
Sales Revenue $990,000
Cost of goods sold 342,000
Contribution $648,000
Period Costs:
Direct labor $250,000
Fixed manufacturing overhead 300,000
Fixed selling and administrative expenses 90,000 $640,000
Net Income $8,000
2. Assuming Bracey Company uses a variable costing system that assigns $12,50 of direct labor cost to each unit produced:
a. Computation of the unit product cost for the year:
Unit product cost
= Direct materials $19
Direct labor $12.50
Total $31.50
b. Bracey Company Income Statement for the year ended December 31:
Sales Revenue $990,000
Cost of goods sold 567,000
Contribution $423,000
Period Costs:
Fixed manufacturing overhead 300,000
Fixed selling and administrative expenses 90,000 $390,000
Net Income $33,000
3. Assuming Bracey Company uses an absorption costing system that assigns $12.50 of direct labor cost and $15.00 of fixed manufacturing overhead cost to each unit produced:
a. Computation of the unit product cost for the year:
Unit product cost:
Direct materials $19.00
Direct labor $12.50
Overhead $15.00
Total $46.50
b. Bracey Company Income Statement for the year ended December 31:
Sales Revenue $990,000
Cost of goods sold 837,000
Contribution $153,000
Period Costs:
Fixed selling and administrative expenses 90,000
Net Income $63,000
4. Reconciliation between super-variable costing and variable costing net operating incomes:
a.
Net operating income as per super-variable costing $8,000
Add Ending Inventory, direct labor cost (2,000 x $12.50) 25,000
Net operating income as per variable costing $33,000
b.
Net operating income as per super-variable costing $8,000
Add Ending Inventory, labor + overhead (2,000 x $27.50) 55,000
Net operating income as per absorption costing $63,000
Explanation:
a) Data and Calculations:
Variable cost per unit:
Direct materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $19
Fixed costs per year:
Direct labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . $250,000
Fixed manufacturing overhead . . . . . . . . . . $300,000
Fixed selling and administrative expenses . $90,000
Total units produced . . . . . . . . . . . . . . . . . . . . . . 20,000
Total units sold . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,000
Units in Ending Inventory . . . . . . . . . . . . . . . . . . 2,000
Selling price per unit . . . . . . . . . . . . . . . . . . . . . . . . . $55
b) Bracey Company's super-variable costing method bases the product cost only on the cost of totally variable costs (direct materials). This unit product cost is then applied to the cost of goods sold and the inventory. Other variable and even manufacturing overhead costs are not charged to the ending inventory and the cost of goods sold. They are all regarded as period costs and charged against income during the period. The profit produced in the early periods will be substantially less than subsequent years profits.
Bracey variable costing technique charges all variable factory costs to determine the product cost. On the other hand, the absorption costing method charges all factory costs, whether variable or fixed to determine the product cost.
