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Absorption vs.Variable Costing for the Bohne Company

9. The Bohne Company produces chocolate candies. The chocolates sell for $12 per box. Annually, the company produces 10,000 boxes of chocolates and sells 9,000 boxes of the candies. The company's cost information includes the following:

Direct materials $2.00 per unit
Direct labor $3.00 per unit
Fixed manufacturing overhead $20,000
Fixed selling and administrative expenses $5,000
Variable manufacturing overhead $1.00 per unit
Variable selling and administrative expenses $3.00 per unit

(a) Compute the unit product cost under absorption costing.

(b) Compute the unit product cost under variable costing.

(c) Prepare an income statement using absorption costing.

(d) Prepare an income statement using variable costing.

(e) Explain the difference of $2,000 in the net operating income determined under the absorption and variable costing methods.

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Solution Summary

This solution includes an Excel file containing calculation of unit cost and income statement using absorption and variable costing and explains the difference of $2,000 in the net operating income determined under the absorption and variable costing methods.

$2.19