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    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.

    © BrainMass Inc. brainmass.com June 4, 2020, 12:19 am ad1c9bdddf
    https://brainmass.com/business/income-statement/absorption-variable-costing-example-331164

    Solution Summary

    The solution computes product cost per unit based on absorption as well as variable costing methods.

    $2.19

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