The Dorset n produces and sells a single product. The following data refer to th

Question

The Dorset n produces and sells a single product. The following data refer to the year just completed: Beginning inventory Units produced Units Bold Selling price per Selling and administrative expenses 25,500 22,300 $ 484 unit Variable per unit Fixed per year 25 $312,200 Manufacturing costs: Direct materials cost per unit Direct labor cost per Variable manufacturing overhead cost per unit Fixed manufacturing overhead per year 237 50 31 $357,000 unit Assume that direct labor is a variable cost. Required: a. Compute the unit product cost under both the absorption costing and variable costing approaches. b. Prepare an income statement for the year using absorption costing c. Prepare an income statement for the year using variable costing. d. Reconcile the absorption costing and variable costing net operating income figures in (b) and (c) above.

Explanation / Answer

a) unit product cost under Absorption costing Direct materials cost per unit 237 Direct labor cost per unit 50 Variable manufacturing overhead cost per unit 31 Fixed manufacturing overhead cost per unit (357000/25,500) 14 unit product cost 332 unit product cost under variable costing Direct materials cost per unit 237 Direct labor cost per unit 50 Variable manufacturing overhead cost per unit 31 unit product cost under variable costing 318 cost pu Absorption costing 332 Variable costing 318 b) Absorptiong costing income statement sales (22300*484) 10793200 less cost of goods sold (22300*332) 7403600 Gross profit 3389600 Selling and administrative expense (22300*25+312,200) 869700 net income 2519900 c) Variable costing income statement Sales 10793200 Variable expenses Variable cost of goods sold (22300*318) 7091400 Variable selling & adm expense (22300*25) 557500 7648900 Contribution margin 3144300 fixed expenses Fixed maufacturing overhead 357,000 Fixed selling & administrative expense 312,200 669,200 Net income 2,475,100 d) Reconciliation of variable costing and Absorption costing income statement net operating income under variable costing 2,475,100 Add:Deferred fixed MOH in ending inventory (3200*14) 44800 net operating income under absorption costing 2,519,900

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