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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 selling and administrative \$ 4
Fixed costs per year:
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 \$
Goods available for sale
Less: Ending inventory
Gross Profit
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 \$
Goods available for sale
Less: Ending inventory
Variable cost of goods sold
Variable selling expense
Contribution margin
Less fixed expenses:
Net operating income \$