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Product Variable Costs

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Problem 2

Lehne Company, which has only one product, has provided the following data concerning its most recent month of operations:

Selling Price $112

Units in beginning inventory 500

Units produced 2,600

Units sold 3,000

Units in ending inventory 100

Variable Costs Per Unit:

Direct Materials $13

Direct Labor $49

Variable Manufacturing OH $6

Variable Selling and Admin $10

Fixed Costs:

Fixed Manufacturing OH $80,600

Fixed Selling and Admin $15,000

The company produces the same number of units every month, although the sales in units vary from month to month. The company's variable costs per unit and total fixed costs have been constant from month to month.

Questions:

1. What is the unit product cost for the month under variable costing? (3 points)
2. What is the unit product cost for the month under absorption costing? (3 points)
3. What is the Net Operating Income using the variable costing method? (3 points)
4. What is the Net Operating Income using the absorption costing method? (3 points)
5. Disregarding the results above, explain the differences between the absorption and the variable costing income statements in general terms. (3 points)

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Solution Summary

Lehne Company, which has only one product, has provided the following data concerning its most recent month of operations.

Solution provided by:
Manal Elkhoshkhany, MBA
Education
  • BA, Ain Shams University, Cairo Egypt
  • MBA, California State University, Sacramento
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