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    Variable Costing Unit Product Cost and Income Statement

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    I have attempted to figure out the first two problems. I just need to compare my anwers so see I they match. I am not sure how to figure out problem #3, so I need a step-by- step solution.

    Desktec, Inc. makes an oak desk for personal computers. The desk sells for $200. Data for last year's operations are:

    Units at beginning inventory 0
    Units produced 10,000
    Units sold 9,000
    Units in ending inventory 1,000
    Variable costs per unit:
    Direct materials $60
    Direct labor 30
    Variable manufacturing overhead 10
    Variable selling and administrative 20
    Total variable cost per unit $120
    Fixed costs:
    Fixed manufacturing overhead $300,000
    Fixed selling and administrative 450,000
    Total fixed costs $750,000

    1. Assume that the company uses variable costing. Compute the unit product cost for one computer desk.

    Direct materials $60.00
    Direct labor 30.00
    Variable manufacturing overhead 10.00
    Unit product cost $100.00

    2. Assume that the company uses variable costing. Prepare an income statement for the year using the contribution format.


    Sales (9,000 units X $10) 90,000
    Less variable expenses
    Variable cost of goods sold:
    Beginning inventory 0
    Add variable manufacturing costs 1,000,000
    (10,000 X $100 per unit)
    Goods available for sale 1,000,000
    Less ending inventory (1,000 X $100 per unit) 100,000
    Variable cost of good sold 900,000
    Variable selling and administrative expenses
    (9,000 X $100 per unit) 90,000 990,000
    Contribution margin 990,000
    Less fixed expenses:
    Fixed manufacturing overhead $300,000
    Fixed selling and administrative 450,000 750,000
    Net operating income $240,000

    3. What is the company's break-even point in terms of units sold?

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    Solution Preview

    Answer 1 is correct.

    Answer 2 should be
    Sales 9,000X200=1,800,000
    Variable Cost 900,000
    Variable Selling (9,000X20)=180,000
    Total variable cost 1,080,000
    Contribution Margin = 720,000
    Fixed Cost 750,000
    Net ...

    Solution Summary

    The solution explains the calculation of unit cost and preparation of an income statement under variable costing and the determination of breakeven point.