My problem is: Josephine recently started a new job at the Oakes Corporation, wh

Question

My problem is: Josephine recently started a new job at the Oakes Corporation, which has only one product, and has provided the following data concerning its most recent month of operations: Selling price per unit is $108. Variable costs per unit include direct material $ 28, direct labor $30, variable manufacturing overhead $7 and fixed manufacturing overhead $11. Fixed manufacturing overhead in total is $14,300 and Fixed selling overhead is $1,800. The company had no inventory at the beginning. They produced 1100 units and sold 900 units. Josephine is to receive a bonus based on a percentage of the net income. Josephine is struggling computing the net income using variable costing and absorption costing. She wants to make a case for using the method that yields her the highest bonus.

I am building the income statements for absorption and variable costing, but I am being thrown off by how to classify "fixed manufacturing overhead of $11" that is says is included as a variable cost per unit?

Explanation / Answer

Absorption Costing Income Statement Sales 900*108 97200 Cost of goods sold(28+30+7+11) 68400 Gross Margin 28800 Fixed selling overhead 1800 Operating Income 27000 Variable Costing Income Statement Sales 900*108 97200 Variable Cost Direct Material 28*900 25200 Direct Labor 30*900 27000 variable manufacturing overhead 7*900 6300 58500 Contribution Margin 38700 Fixed Cost Manufacturing 14300 Fixed selling overhead 1800 16100 Operating Income 22600

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