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Calculating Product Cost Using Variable and Absorption Costing

Manufacturing costs:

Fixed overhead $200,000
Variable Overhead $4.00 per Tent
Direct Labor $16.00 per Tent
Direct Materials $40 per tent
Beg. Inv. 0
Tents Produced 10,000
Tents Sold 9,000
Selling and admin costs.
Fixed $400,000
Variable $6 per tent sold

The tent sells for $150.00 and Management is interested in opening month's result and has asked for an income statement.

a. Assume the company uses absorption costing to calculate the manufacturing cost per unit:
i) $80.00
ii) Prepare an absorption costing income statement for the month of June 2005

b. Assuming the company uses variable costing, calculate the manufacturing cost per unit:
i) $60.00
ii) Prepare a variable costing income statement for the month of June 2005

c. Reconcile the differences in the net income between the two methods.

Solution Preview

The Solution to your posted problem provided in a separate excel file attached includes the following:
1. Data used in the problem
2. Statement of unit cost analysis under Variable and absorption costing
3. Income statement under Absorption costing
4. Income ...

Solution Summary

This solution provides guidelines on calculating the product costing variable costing and absorption costing, as well as reconcile the two differences in the net income between the two methods.

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