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 34,100 28,100 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) 452 23 S 393,400 $ 208 58 38 $ 716,100 $ 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.

Calculation of Unit Product cost:

Absorption Costing method:

Cost per Unit

Direct Material

$                208.00

Add: Direct Labor

$                  58.00

Add: Variable overhead Cost

$                  38.00

Add: Fixed overhead Cost

= (Total Fixed OH / Units Produced) = ($716000 / 34100) =

$                  21.00

Unit Product Cost =

$                325.00

Variable Costing method:

Cost per Unit

Direct Material

$                208.00

Add: Direct Labor

$                  58.00

Add: Variable overhead Cost

$                  38.00

Unit Product Cost =

$                304.00

b.

Absorption Costing Income statement

Sales Revenue

= (Units sold * Sales Price) = 28100*$452 =

$       12,701,200

Less: Cost of Goods sold

= (Units sold * unit product cost) = 28100*$325 =

$       (9,132,500)

Gross Margin

$    3,568,700.00

Less: Selling and Administrative Costs

= (Units sold * Variable per unit ) + Fixed = (28100*$23)+393400 =

$ (1,039,700.00)

Net Operating income

$    2,529,000.00

c.

Variable Costing Income statement

Sales Revenue

= (Units sold * Sales Price) = 28100*$452 =

$ 12,701,200

Less: Variable expenses:

Direct Material (28100 Units * $208)

$       (5,844,800)

Direct Labor (28100 Units * $58)

$       (1,629,800)

Variable overhead Cost (28100 Units * $38)

$       (1,067,800)

Variable Selling and Administrative Costs (28100 Units * $23)

$           (646,300)

$ (9,188,700)

Contribution Margin

$    3,512,500

Less: Fixed Expenses:

Fixed overhead Cost

$           (716,100)

Fixed Selling and Administrative Costs

$           (393,400)

$ (1,109,500)

Net Operating income

$    2,403,000

d.

Reconciliation of Variable Costing and Absorption Costing Net Operating incomes

Net Operating income under Variable Costing

$    2,403,000.00

Add: Under absorbed fixed Manufacturing Overhead =

= (Units Produced - units sold )*Fixed Overhead per unit = (34100 Units-28100 Units )*$21

$       126,000.00

Net Operating income under Absorption Costing

$    2,529,000.00

a.

Calculation of Unit Product cost:

Absorption Costing method:

Cost per Unit

Direct Material

$                208.00

Add: Direct Labor

$                  58.00

Add: Variable overhead Cost

$                  38.00

Add: Fixed overhead Cost

= (Total Fixed OH / Units Produced) = ($716000 / 34100) =

$                  21.00

Unit Product Cost =

$                325.00

Variable Costing method:

Cost per Unit

Direct Material

$                208.00

Add: Direct Labor

$                  58.00

Add: Variable overhead Cost

$                  38.00

Unit Product Cost =

$                304.00

b.

Absorption Costing Income statement

Sales Revenue

= (Units sold * Sales Price) = 28100*$452 =

$       12,701,200

Less: Cost of Goods sold

= (Units sold * unit product cost) = 28100*$325 =

$       (9,132,500)

Gross Margin

$    3,568,700.00

Less: Selling and Administrative Costs

= (Units sold * Variable per unit ) + Fixed = (28100*$23)+393400 =

$ (1,039,700.00)

Net Operating income

$    2,529,000.00

c.

Variable Costing Income statement

Sales Revenue

= (Units sold * Sales Price) = 28100*$452 =

$ 12,701,200

Less: Variable expenses:

Direct Material (28100 Units * $208)

$       (5,844,800)

Direct Labor (28100 Units * $58)

$       (1,629,800)

Variable overhead Cost (28100 Units * $38)

$       (1,067,800)

Variable Selling and Administrative Costs (28100 Units * $23)

$           (646,300)

$ (9,188,700)

Contribution Margin

$    3,512,500

Less: Fixed Expenses:

Fixed overhead Cost

$           (716,100)

Fixed Selling and Administrative Costs

$           (393,400)

$ (1,109,500)

Net Operating income

$    2,403,000

d.

Reconciliation of Variable Costing and Absorption Costing Net Operating incomes

Net Operating income under Variable Costing

$    2,403,000.00

Add: Under absorbed fixed Manufacturing Overhead =

= (Units Produced - units sold )*Fixed Overhead per unit = (34100 Units-28100 Units )*$21

$       126,000.00

Net Operating income under Absorption Costing

$    2,529,000.00

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