The Dean Corporation produces and sells a single product. The following data ref

Question

The Dean Corporation produces and sells a single product. The following data refer to the year just completed Beginning inventory Units produced Units sold 31,600 29,600 Selling price per unit Selling and administrative expenses: Variable per unit Fixed (total) Manufacturing costs: Direct materials cost per unit Direct labor cost per unit Variable manufacturing overhead cost per unit $ Fixed manufacturing overhead (total) $ 414 21 621,600 $ 216 50 37 $ 379,200 Assume that direct labor is a variable cost Required a. Compute the cost of a single unit of product under both the absorption costing and variable costing approaches Cost per unit Absorption costing Variable costing

Explanation / Answer

a. Cost per unit under absorption costing = $ 315 Cost per unit under variable costing = $ 303 Cost per unit under absorption costing Direct materials = $ 216 Direct labor = $ 50 Variable overhead = $ 37 Fixed overhead ($3,79,200 / 31,600 ) = $ 12 Total cost per unit = $ 315 Cost per unit under variable costing Direct materials = $ 216 Direct labor = $ 50 Variable overhead = $ 37 Total cost per unit = $ 303 b. Absorption costing income statement Sales ($414*29,600) $ 1,22,54,400 Cost of goods sold Beginning inventory 0 Add: Cost of goods manufactured ($315*31,600) $ 99,54,000 Cost of goods available $ 99,54,000 Less: Ending inventory ($315*2,000) $   6,30,000 $     93,24,000 Gross profit $     29,30,400 Selling and administrative expenses ($21*29,600) + $6,21,600 $     12,43,200 Net operating income $     16,87,200 c. Variable costing income statement Sales ($414*29,600) $ 1,22,54,400 Cost of goods sold Beginning inventory 0 Add: Cost of goods manufactured ($303*31,600) $ 95,74,800 Cost of goods available $ 95,74,800 Less: Ending inventory ($303*2,000) $   6,06,000 Variable Cost of goods sold $ 89,68,800 Variable selling and administrative expenses: ($21*29,600) $   6,21,600 $     95,90,400 Contribution margin $     26,64,000 Less: Fixed expenses Manufacturing overhead $   3,79,200 Selling and administrative $   6,21,600 $     10,00,800 Net operating income $     16,63,200 d. Net operating income under variable costing = $ 16,63,200 Add: Fixed manufacturing overhead costs deffered in inventory under absorption costing ($12*2,000) = $       24,000 Net operating income under absorption costing = $ 16,87,200

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