Baxtell Company manufactures and sells a single product. The following costs wer

Question

Baxtell Company manufactures and sells a single product. The following costs were incurred during the company's first year of operations Variable costs per unit Manufacturing Direct materials Direct labour Variable manufacturing overhead $ 31 17 Variable selling and administrative Fixed costs per year: Fixed manufacturing overhead Fixed selling and administrative expense 358,150 132,600 During the year, the company produced 27,550 units and sold 22,100 units. The selling price of the company's product is $86 per unit. Required. 1. Assume that the company uses absorption costing a. Compute the unit product cost. Unit product cost b. Prepare an income statement for the year Absorption Costing Income Statement Cost of goods sold

Explanation / Answer

1 Under Absorption Costing a. Unit product cost: Direct Material $               31 Direct Labour $               17 Varialble Manufaturing overhead $                  6 Total Variable Cost $               54 Fixed Manufacturing overhead ($3,58,150/27,550) $               13 Unit product cost $               67 b. Absorbtion Costing Income Statement Sales(22,100 X $86) $ 19,00,600 Less: Cost of Goods Sold Beginning Inventory 0 Add: Cost of Goods manufactured (27,550 X $67) $ 18,45,850 Goods available for sale $ 18,45,850 Less: Ending Inventory (5,450 X $67) $   3,65,150 Gross Margin $ 14,80,700 Less: Selling and Administrative expenses [(22,100 X $8) + $1,32,600] $   3,09,400 Net Operating Income $ 11,71,300 2 Under Variable Costing a. Unit product cost: Direct Material $               31 Direct Labour $               17 Varialble Manufaturing overhead $                  6 Unit product cost $               54 b. Variable Costing Income Statement Sales(22,100 X $86) $ 19,00,600 Less: Variable expenses: Variable Cost of goods sold: Beginning Inventory 0 Add: Variable Manufacturing Cost(27,550 X $54) $ 14,87,700 Goods available for sale $ 14,87,700 Less: Ending Inventory (5,450 X $54) $   2,94,300 Variable Cost of goods sold $ 11,93,400 Add: Variable selling expenses (22,100 X $8) $   1,76,800 $ 13,70,200 Contribution margin $   5,30,400 Less: Fixed Expenses: Fixed Manufacturing overhead $   3,58,150 Fixed Selling and Administrative expenses $   1,32,600 $   4,90,750 Net operating Income $       39,650

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