Bracey Company manufactures and sells one product. The following information per

Question

Bracey Company manufactures and sells one product. The following information pertains to the company's first year of operations: Variable cost per uniti Direct materials 30 Fixed costs per yeari Direct labor Fixed manufacturing overhead Fixed selling and administrative expenses $ 408,000 410,550 70,000 The company does not incur any variable manufacturing overhead costs or variable selling and administrative expenses. During its first year of operations, Bracey produced 25,500 units and sold 23,500 units. The selling price of the company's product is $68 per unit. Required: 1. Assume the company uses super-variable costing a. Compute the unit product cost for the year b. Prepare an income statement for the year 2. Assume the company uses a variable costing system that assigns $16.00 of direct labor cost to each unit produced: a. Compute the unit product cost for the year b. Prepare an income statement for the year 3. Assume the company uses an absorption costing system that assigns $16.00 of direct labor cost and $16.10 of fixed manufacturing overhead cost to each unit produced a. Compute the unit product cost for the year b. Prepare an income statement for the year 4a. Reconcile the difference between the super-variable costing and variable costing net operating incomes. 4b. Reconcile the difference between the super-variable costing and absorption costing net operating incomes.

Explanation / Answer

1 a. Under super variable costing, unit product cost=direct material=$30 per unit b. Income statement Sales (23500*68) 1598000 Less:Cost of goods sold (23500*30) 705000 Gross profit 893000 Less:Fixed costs Direct labor 408000 Fixed manufacturing overhead 410550 Fixed selling and administrative expense 70000 888550 Net operating income 4450 2 a. Under variable costing, unit product cost=all variable expenses=direct material+Direct labor=30+16=$46 per unit b. Income statement Sales (23500*68) 1598000 Less:Cost of goods sold (23500*46) 1081000 Gross profit 517000 Less:Fixed costs Fixed manufacturing overhead 410550 Fixed selling and administrative expense 70000 480550 Net operating income 36450 3 a. Under absorption costing, unit product cost=all manufacturing expenses=direct material+Direct labor+Fixed manufacturing overhead=30+16+16.10=$62.10 per unit b. Income statement Sales (23500*68) 1598000 Less:Cost of goods sold (23500*62.10) 1459350 Gross profit 138650 Less:Fixed costs Fixed selling and administrative expense 70000 70000 Net operating income 68650 4a. Reconcilation between super variable costing and variable costing: Net operating income as per super variable costing 4450 Add:Direct labor cost Involved in inventory [(25500-23500)*16] 32000 Net operating income as per variable costing 36450 4b. Reconcilation between super variable costing and absorption costing: Net operating income as per super variable costing 4450 Add:Direct labor cost Involved in inventory [(25500-23500)*16] 32000 Fixed manufacturing overhead involved in inventory [(25500-23500)*16.10] 32200 Net operating income as per absorption costing 68650

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