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Variable costing and absorption costing - Advance Products Inc

Advance Products, Inc. has just organized a new division to manufacture and sell specially designed tables for mounting and using personal computers. The company's new plant is highly automated and thus requires high monthly fixed costs, as shown in the schedule below:

Manufacturing costs:
Variable costs per unit:

Direct materials $ 50
Direct labor 36
Variable manufacturing overhead 4
Fixed manufacturing costs (total) 240,000

Selling and administrative costs:
Variable 15% of sales
Fixed (total) $160,000

During the first month of operations, the following activity was recorded:

Units produced 4,000
Units sold 3,200
Selling price per unit $ 250


1. Compute the unit product cost under:
a. Absorption costing
b. Variable costing
2. Prepare an income statement for the month using absorption costing.
3. Prepare an income statement for the month using variable costing.
4. Reconcile the absorption costing and variable costing net income figures in (2) and (3) above for the month.

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In the variable costing income statement, the fixed ...

Solution Summary

The solution explains the calculation of unit cost and the preparation of income statement under variable costing and absorption costing