Absorption & Variable Costing Example
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Maxwell Company manufactures and sells a single product. The following costs were incurred during the company's first year of operations: Variable costs per unit: Manufacturing : Direct materials $18, Direct labor $7, Variable manufacturing overhead $2, Variable selling and administrative $5, Fixed costs per year $160,000, Fixed selling and administrative expenses $110,000. During the year, the company produced 20,000 units and sold 16,000 units. The selling price of the company's product is $50 per unit.
1. Assume that the company uses absorption costing:
a. Compute the unit product cost.
b. Prepare an income statement for the year.
2. Assume that the company uses variable costing:
a. Compare the unit product cost.
b. Prepare an income statement for the year.
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Solution Summary
The solution computes product cost per unit based on absorption as well as variable costing methods.
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