Required information Exercise 6-9 Income statement under absorption costing and

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 42,000 units and sold 34,000 units at a price of $130 per unit. 54 U UN- 20 Manufacturing costs Direct materials per unit Direct labor per unit Variable overhead per unit Fixed overhead for the year Selling and administrative costs Variable selling and administrative cost per unit Fixed selling and administrative cost per year $462,000 11 $100,000 Exercise 6-9 Part 1a 1a. Assume the company uses absorption costing. Determine its product cost per unit. Per unit product cost using: Absorption costing Cost per unit

Explanation / Answer

1a. Assume the company uses absorption costing. Determine its product cost per unit. Per unit product cost using: Absorption costing Cost per unit Direct materials per unit $50.00 Direct labor per unit $20.00 Variable overhead per unit $6.00 Fixed overhead per unit = $462,000/42000 $11.00 Cost per unit $87.00 1b. Assume the company uses absorption costing. Prepare its income statement for the year under absorption costing. COOL SKY Absorption Costing Income Statement Sales = 34000 x $130 per unit $4,420,000.00 Less: Cost of Good Sold Direct Material $1,700,000.00 Direct Labour $680,000.00 Variable Overhead $204,000.00 Fixed overhead $374,000.00 $2,958,000.00 Gross margin $1,462,000.00 Less: Selling and administrative expenses Variable selling and administrative cost per unit $374,000.00 Fixed selling and administrative cost per year = $100,000.00 $474,000.00 Net income (loss) $988,000.00 2a. Assume the company uses variable costing. Determine its product cost per unit. Per unit product cost using: Variable costing Direct materials per unit $50.00 Direct labor per unit $20.00 Variable overhead per unit $6.00 Variable selling and administrative cost per unit $11.00 Cost per unit $87.00 2b. Assume the company uses variable costing. Prepare its income statement for the year under variable costing. COOL SKY Variable Costing Income Statement Sales = 34000 x $130 per unit $4,420,000.00 Direct Material $1,700,000.00 Direct Labour $680,000.00 Variable Overhead $204,000.00 Variable selling and administrative cost per unit $374,000.00 $2,958,000.00 Contribution Margin $1,462,000.00 Less: Fixed overhead for the year $462,000.00 Fixed selling and administrative cost per year = $100,000.00 $562,000.00 Net income (loss) $900,000.00

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