BIA Enterprises manufactures and sells one product. The following information pe
ID: 2582139 • Letter: B
Question
BIA Enterprises manufactures and sells one product. The following information pertains to each of the company’s first two years of operations: Variable costs per unit: Manufacturing: Direct Materials $ 35 Direct Labor $ 25 Variable manufacturing overhead $ 7 Variable Selling and administrative $ 5 Fixed costs per year: Fixed manufacturing overhead $ 400,000 Fixed selling and administrative expenses $ 125,000 During its first year of operations, BIA produced 50,000 units and sold 40,000 units. During its second year of operations, BIA produced 40,000 and sold 50,000 units. The selling price of the company’s product is $100 per unit. 1) Assume the company uses Variable Costing. a. Compute the unit product cost for Year 1 and Year 2. b. Prepare an income statement for Year 1 and Year 2 using Variable Costing. 2) Assume the company uses Absorption Costing. a. Compute the unit product cost for Year 1 and Year 2. b. Prepare an income statement for Year 1 and Year 2 using Absorption Costing.
Explanation / Answer
Answer: Variable costing:
Unit Product Cost year 1: Direct labour + Direct material + Variable manufacturing overhead
Unit Product Cost Year 1: $25 + $35 + $7 = $67
Unit product cost year 2: will reamin same as $67
Income statement:
Absorption costing:
Unit product cost : Direct Labor + Direct material + Variable manufacturing overhead + Fixed manufacturing overhead
Unit product cost year 1 : 25 + 35 + 7 + 400000/50000
Unit product cost year 1 : $67 + $8 = $75
Unit product cost year 2 : 25 + 35+ 7 + 400000/40000
Unit product cost year 2 : 67 + 10 = $77
Income statement
Year 1 Year 2 Revenue unit sales price * no of units sold 4000000 5000000 COGS unit cost * no of units made 2680000 3350000 SG&A Variable selling + Fixed selling & variable manufacturing overhead 725000 775000 EBIDTA 595000 875000Related Questions
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