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    Variable and Absorption Costing in Accounting

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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 $ 20
    Direct labor $ 7
    Variable manufacturing overhead $ 2
    Variable selling and administrative $ 4
    Fixed costs per year:
    Fixed manufacturing overhead $ 210,000
    Fixed selling and administrative expenses $ 80,000

    During the year, the company produced 21,000 units and sold 16,400 units. The selling price of the company's product is $66 per unit.

    Requirement 1:
    Assume that the company uses absorption costing:
    A) Compute the unit product cost
    Unit product cost = $ ____________

    B) Prepare an income statement for the year. (Fill in grey area)
    Sales $
    Cost of goods sold:
    Beginning inventory $
    Add: Cost of goods manufactured
    Goods available for sale
    Less: Ending inventory
    Gross Profit
    Selling and administrative expenses
    Net operating income $

    Requirement 2:
    Assume that the company uses variable costing:
    A) Compute the unit product cost.
    Unit product cost = $___________

    B) Prepare an income statement for the year. (Fill in grey area)
    Sales $
    Less variable expenses
    Variable Cost of goods sold:
    Beginning inventory $
    Add: Variable manufacturing costs
    Goods available for sale
    Less: Ending inventory
    Variable cost of goods sold
    Variable selling expense
    Contribution margin
    Less fixed expenses:
    Fixed manufacturing overhead
    Fixed selling and administrative
    Net operating income $

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    https://brainmass.com/economics/labour-economics/variable-absorption-costing-accounting-232361

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    Solution Summary

    The solution explains some calculations relating to variable and absorption costing

    $2.19

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