Exercise 8-25 Income Statements under Absorption and Variable Costing In the com
ID: 2418847 • Letter: E
Question
Exercise 8-25 Income Statements under Absorption and Variable Costing
In the coming year, Kalling Company expects to sell 28,700 units at $32 each. Kalling’s controller provided the following information for the coming year.
Units production
30,000
Unit direct materials
$9.95
Unit direct labor
$2.75
Unit variable overhead
$1.65
Unit fixed overhead*
$2.50
Unit selling expense (variable)
$2.00
Total fixed selling expense
$65,500
Total fixed administrative expense
$231,000
*
The unit fixed overhead is based on 30,000 units produced.
Required:
1.Calculate the cost of one unit of product under absorption costing.
2.Calculate the cost of one unit of product under variable costing.
3.Calculate operating income under absorption costing for next year.
4.Calculate operating income under variable costing for next year.
OBJECTIVE 1
Units production
30,000
Unit direct materials
$9.95
Unit direct labor
$2.75
Unit variable overhead
$1.65
Unit fixed overhead*
$2.50
Unit selling expense (variable)
$2.00
Total fixed selling expense
$65,500
Total fixed administrative expense
$231,000
Explanation / Answer
Unit Cost determination(30000 Units) Under Absorption Costing Under Variable Costing Unit direct materials $ 9.95 $ 9.95 Unit direct labor $ 2.75 $ 2.75 Unit variable overhead $ 1.65 $ 1.65 Unit fixed overhead $ 2.50 $ 16.85 $ 14.35 Operating Income statement(Absorption) Price/unit Units Amount sales 32 28700 918400 Less: Cost of goods sold 16.85 28700 483595 Gross Profit 434805 Less: Selling and administrative expenses Variable selling expenses 2 28700 57400 Fixed selling expenses 65500 Fixed administrative expenses 231000 Net Operating Income 80905 Operating Income statement(Variable) Price/unit Units Amount sales 32 28700 918400 Less: Variable Cost of goods sold 14.35 28700 411845 Gross Contribution Margin 506555 Less: Variable selling expenses 2 28700 57400 449155 Less: Periodic Cost Fixed selling expenses 65500 Fixed administrative expenses 231000 Fixed Manufacturing Overhead 2.5 30000 75000 Net Operating Income 77655 Difference in income 3250 Fixed cost deferred in inventory(1300*2.5) 3250
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