Bracey Company manufactures and sells one product. The following information per
ID: 2581197 • Letter: B
Question
Bracey Company manufactures and sells one product. The following information pertains to the company’s first year of operations:
The company does not incur any variable manufacturing overhead costs or variable selling and administrative expenses. During its first year of operations, Bracey produced 22,000 units and sold 20,700 units. The selling price of the company’s product is $56 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 $12.50 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 $12.50 of direct labor cost and $15.40 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.
Variable cost per unit: Direct materials $ 23 Fixed costs per year: Direct labor $ 275,000 Fixed manufacturing overhead $ 338,800 Fixed selling and administrative expenses $ 56,000Explanation / Answer
1a Direct Material per Unit 23 Unit Product Cost under Super Variable Costing 23 Super variable cost is the cost which is variable with respect to the production, here only variable cost is the cost of direct materials, hence considered as unit product cost and direct labor, manufacturing costs and selling are fixed , hence not considered as product cost . 1b COMPANY B Super-Variable Costing Income Statement Sales ( 20700*56) 1159200 Variable Cost of Goods Sold (20700*23) 476100 Contribution Margin 683100 Fixed Expenses Direct Labor 275000 Fixed manufcturing overhead 338800 Fixed selling and administrative expenses 56000 669800 Net Income 13300 2a) Direct Material per Unit 23 Direct Labor per Unit 12.5 Unit Product Cost under Variable Costing 35.5 2b) COMPANY B Super-Variable Costing Income Statement Sales - 20700*56 1159200 Variable Cost of Goods Sold - 20700*35.50 734850 Contribution Margin 424350 Fixed Expenses Fixed MOH 338800 Fixed Selling & Admn. Exp. 56000 394800 Net Income 29550 3a Direct Material per Unit 23 Direct Labor per Unit 12.5 Fixed manufacturing overhead 15.4 Unit Product Cost under Absorption Costing 50.9 3b) COMPANY B Income Statement ( absorption costing) Sales ( 20700*56) 1159200 Cost of Goods Sold (20700*50.90) 1053630 Gross Margin 105570 Less fixed selling and administartive cost -56000 Net income 49570 4a) Super variable costing net income 13300 Add: Direct Labor Cost deferred in Inventory Under Variable Costing (22000-20700)*12.5 16250 Variable Costing Net Operating Income 29550 4b) Super variable costing net income 13300 Add: Direct Labor Cost & Fixed MOH deferred in Inventory Under Variable Costing (22000-20700)*(12.50+15.40) 36270 Absorption Costing Net Operating Income 49570
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