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# Unit product cost under absorption costing

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Vosges Candy Company produces handmade candies. The candies sell for \$12 per box. During its first year of operations, the company produced 10,000 boxes of candies and sold 9,000 boxes of the candies. The companyâ??s cost information includes the following:

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

Part (a) Compute the unit product cost under absorption costing.
Part (b) Compute the unit product cost under variable costing.
Part (c) Prepare an income statement using absorption costing.
Part (d) Prepare an income statement using variable costing.
Part (e) Explain the difference in the net operating income determined under the absorption and variable costing methods.

Lubelchek Company uses activity-based costing to determine the costs of its two products: A and B. The estimated total cost and expected activity for one of the company's three activity cost pools are as follows:

Expected Activity
Estimated Cost Product A Product B
\$28,000 400 300

Part (a) What is the activity rate under the activity-based costing system for this activity?
Part (b) How much total cost will be assigned to Products A and B for this activity?

Barabanova Company has two products: A and B. The annual production and sales level of Product A is 18,188 units. The annual production and sales level of Product B is 31,652. The company uses activity-based costing and has prepared the following analysis showing the estimated total cost and expected activity for each of its three activity cost pools:

Activity Cost Pool Estimated
Cost Expected Activity
Product A Product B
Activity 1 \$ 80,000 200 800
Activity 2 360,000 600 5,400
Activity 3 58,400 1,000 500

Part (a) What is the total overhead cost allocated to Product B under activity-based costing?
Part (b) What is the overhead cost per unit of Product B under activity-based costing?

#### Solution Preview

Vosges Candy Company produces handmade candies. The candies sell for \$12 per box. During its first year of operations, the company produced 10,000 boxes of candies and sold 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
Variable manufacturing overhead \$ 1.00 per unit
Variable selling and administrative expenses \$ 3.00 per unit
Fixed selling and administrative expenses \$ 5,000

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

A) Absorption costing
Product cost= Direct Labor + Direct Materials used + Variable manufacturing overhead + Fixed Manufacturing Overhead
=(2+3+1)*10000+20000
\$80,000.00

Unit Product cost= Product cost/Units produced
\$8.00

B) Variable ...

#### Solution Summary

Response provides steps to compute the unit product cost under absorption costing

\$2.19