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