Fletcher Company manufactures and sells one product. The following information p
ID: 2427362 • Letter: F
Question
Fletcher Company manufactures and sells one product. The following information pertains to each of the company's first two years of operations: During its first year of operations, Fletcher produced 50,000 units and sold 40,000 units. During its second year of operations, it produced 40,000 units and sold 50,000 units. The selling price of the company's product is $50 per unit. (1.) Assume the company uses variable costing: (a.) Compute the unit product cost for year 1 and year 2.( b.) Prepare an income statement for year 1 and year 2. (2) Assume the company uses absorption costing: a. Compute the unit product cost for year 1 and year 2. (b.) Prepare an income statement for year 1 and year 2. (3) Explain the difference between variable costing and absorption costing net operating income in year 1. Also explain why the two net operating incomes differ in year 2.VARIABLE Cost: Direct materials $20, Direct labor $12, variable manufacturing overhead $4, and variable selling and manufacturing $3. FIXED cost per year: fixed manufacturing overhead $200,000 and fixed selling and administrative expenses $80,000
Explanation / Answer
1Variable costing
a. Computation of product cost using variable costing:
b. Income Statement:
2. Absorption costing:
a. Unit product cost:
b. Income Statement:
3. In year 1, net operating income under absorption costing is higher by $ 40,000 as compared to that as computed for variable costing. This diifference is due to the effect of including fixed manufacturing overhead @ $ 4 in product cost. As there are 10,000 units of ending inventory at the end of Year 1, there is a difference of $ 40,000 between the net operating incomes computed under the two methods.
$ $ Direct material cost 20 20 Direct labor cost 12 12 Variable manufacturing overhead cost 4 4 Variable selling and manufacturing overhead 3 3 Product cost per unit 39 39Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.