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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Solution Summary
The solution explains some calculations relating to variable and absorption costing
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