Year 1 $ 1,037,000 Year 2 Sales ( $61 per unit) Cost of goods sold ( $38 per uni

Question

Year 1 $ 1,037,000 Year 2 Sales ( $61 per unit) Cost of goods sold ( $38 per unit) Gross margin Selling and administrative expenses* Net operating income $ 1,647,000 621,000 s 189,000 289,000 646,000102010 391,000 302,000332,000 *$3 per unit variable; $251,000 fixed each year The company's $38 unit product cost is computed as follows Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($418,000 Absorption costing unit product cost 22,000 units) 19 $ 38 Forty percent of fixed manufacturing overhead consists of wages and salaries; the remainder consists of depreciation charges on production equipment and buildings Production and cost data for the first two years of operations are Units produced Units sold Year 1 Year 2 22,000 22,000 17,000 27,000 Required 1. Using variable costing, what is the unit product cost for both years? 2. What is the variable costing net operating income in Year 1 and in Year 2? 3. Reconcile the absorption costing and the variable costing net operating income figures for each year

Explanation / Answer

Solution 1:

Solution 2:

Solution 3:

Computation of Unit Product Cost - Variable Costing (For both years) Particulars Per unit Unit Product Cost: Direct material $6.00 Direct Labor $9.00 Variable manufacturing overhead $4.00 Unit product cost $19.00

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