Buddy\'s Baseball Bat Manufacturing produced 80,000 baseball bats in 2005. The c

Question

Buddy's Baseball Bat Manufacturing produced 80,000 baseball bats in 2005.

The company sold 60,000 bats at a selling price of $50 a bat. The company had the following costs related to the production of 80,000 bats.

Direct Materials $800,000

Direct Labor $400,000

Variable Overhead $250,000

Fixed Overhead $200,000

Variable Selling/Admin $250,000

Fixed Selling/Admin $200,000

1) Calculate the unit COGS under both absorption and variable costing.

2) Prepare an Income Statement under both absorption and variable costing.

Explanation / Answer

Calculation of Unit cost of goods sold Absorption Costing Variable Costing Direct Material ($800000/80000 units)                    10.00                     10.00 Direct Labour ($400000/80000 units)                      5.00                       5.00 Variable Overhead ($250000/80000 units)                      3.13                       3.13 Fixed Overhead ($200000/80000 units)                      2.50                            -   Unit cost of goods sold                    20.63                     18.13 Income statement under Absorption Costing Absorption Costing Sales (60000 bats * $50) $3,000,000 Less : Cost of goods sold (60000 bats * $20.63) $1,237,500 Gross Margin $1,762,500 Less : Selling and adminsitrative cost - Fixed $200,000 - Variable ($3.125*60000 bats) $187,500 Operating Income $1,375,000 Income statement under Variable Costing Variable Costing Sales (60000 bats * $50) $3,000,000 Less : Variable Expenses - Cost of goods sold (60000 bats * $18.13) $1,087,500 - Selling and administrative expense $187,500 Contribution Margin $1,725,000 Less : Fixed Expenses - Overheads $200,000 - Selling and administrative expense $200,000 Operating Income $1,325,000

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