Required information Exercise 6-9 Income statement under absorption costing and
ID: 2510395 • Letter: R
Question
Required information
Exercise 6-9 Income statement under absorption costing and variable costing LO P1, P2
[The following information applies to the questions displayed below.]
Cool Sky reports the following costing data on its product for its first year of operations. During this first year, the company produced 44,000 units and sold 36,000 units at a price of $120 per unit.
Exercise 6-9 Part 1a
1a. Assume the company uses absorption costing. Determine its product cost per unit.
1b. Assume the company uses absorption costing. Prepare its income statement for the year under absorption costing.
2a. Assume the company uses variable costing. Determine its product cost per unit.
2b. Assume the company uses variable costing. Prepare its income statement for the year under variable costing.
Manufacturing costs Direct materials per unit $ 48 Direct labor per unit $ 18 Variable overhead per unit $ 6 Fixed overhead for the year $ 440,000 Selling and administrative costs Variable selling and administrative cost per unit $ 10 Fixed selling and administrative cost per year $ 115,000Explanation / Answer
Answer
Product Unit Cost
Cost under Absorption Costing
Cost under Variable costing
Direct material
48
48
Direct labor
18
18
Variable Overhead
6
6
Fixed overhead
[$440000/44000 units] 10
0
Total Unit product cost
$82
$72
A
Sales [36000 x $120]
$4,320,000
Less: Cost of Goods Sold
Beginning Inventory
0
Add: Production cost [44000 x $82]
3608000
Less: Cost of ending inventory [8000 x $82]
656000
B
Cost of Goods Sold
2952000
C=A-B
Gross Profits
1368000
Selling & administrative expenses:
variable [36000 x $10]
360000
D
Fixed
115000
475000
E=C-D
Net income
$893,000
A
Sales [36000 x $120]
$4,320,000
Less: variable production cost [36000 x $72]
2592000
Less: Variable selling & admin cost [36000 x $10]
360000
B
Contribution margin
1368000
Less: Fixed Cost
Fixed overhead
440000
C
Fixed Selling & Admin
115000
555000
B - C
Net Income
$813,000
Product Unit Cost
Cost under Absorption Costing
Cost under Variable costing
Direct material
48
48
Direct labor
18
18
Variable Overhead
6
6
Fixed overhead
[$440000/44000 units] 10
0
Total Unit product cost
$82
$72
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