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 unit: Direct materials 36 Fixed costs per year: Direct labor Fixed manufacturing overhead Fixed selling and administrative expenses 541,500 475,950 $ 82,000 The company does not incur any variable manufacturing overhead costs or variable selling and administrative expenses. During its first year of operations, Bracey produced 28,500 units and sold 25,900 units. The selling price of the company's product is $79 per unit. Requirec 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 $19.00 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 $19.00 of direct labor cost and $16.70 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

1A) Super variable costing only considers variable costs to be part of the cost of inventory. All other costs are charged to expense in the period incurred. Thus in this case only variable material cost will be a part of the unit product cost

Therefore, Unit product cost for the year = $36 per unit

1B) Bracey Company

Super Variable costing Income Statement (Amount in $)

2A) In variable costing only variable cost will be a part of the cost of inventory which in this case is direct material and direct labor.

Unit Product cost = Direct material+Direct labor = $36+$19 = $55 per unit

2B) Bracey Company

Variable costing Income Statement (Amount in $)

3A) In absorption costing the fixed manufacturing overhead is also a part of the cost of inventory. Thus the unit product cost as per absorption costing is shown as follows:-

Unit Product Cost = Direct material+Direct Labor+Fixed manufacturing overheads = $36+$19+$16.70 = $71.70

3B) Bracey Company

Absorption costing Income Statement (Amount in $)

4A) Reconciliation between super variable costing and variable costing operating income

4B) Reconciliation between super variable costing and absorption costing operating income

Sales (25,900*$79) 2,046,100 Less: Product cost (25,900*$36) (932,400) Gross Profit 1,113,700 Less: Fixed Costs per year Direct Labor (541,500) Fixed manufacturing overhead (475,950) Fixed selling and administrative expenses (82,000) Net Operating income 14,250

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