Question

Exercise 6-17 Siren Company builds custom fishing lures for sporting goods stores. In its first year of operations, 2020, the company incurred the following costs Variable Costs per Unit Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative expenses $9.90 $4.55 $7.66 $5.15 Fixed Costs per Year Fixed manufacturing overhead Fixed selling and administrative expenses $303,600 $277.332 Siren Company sells the fishing lures for $33.00. During 2020, the company sold 80,000 lures and produced 92,000 lures. Assuming the company uses variable costing, calculate Siren's manufacturing cost per unit for 2020. (Round answer to 2 decimal places, e.g. 10.50.) Manufacturing cost per units

Answer 1

Ans. 1 a	In variable costing method, the unit product cost is the sum of only variable
	manufacturing costs per unit
	Unit product cost under Variable Costing:
	Direct materials	$9.90
	Direct labor	$4.55
	Variable Overhead per unit	$7.66
	Manufacturing cost per unit	$22.11
Ans. 1 b	SIREN COMPANY
	Income Statement
	For 2020
	Variable Costing
	Particulars		Amount
	Sales   (80,000 * $33)		$2,640,000
	Less: Variable cost of goods sold:
	Opening inventory	$0
	Add: Variable cost of goods manufactured (92,000 * $22.11)	$2,034,120
	Variable cost of goods available for sale	$2,034,120
	Less: Ending inventory [(92,000 - 80,000) * $22.11]	-$265,320
	Variable cost of goods sold		$1,768,800
	Gross Contribution Margin		$871,200
	Less: Variable Selling and Administrative Expenses ($5.15 * 80,000)		$412,000
	Contribution Margin		$459,200
	Less: Fixed expenses:
	Fixed manufacturing overhead	$303,600
	Fixed selling and adm. expenses	$277,332	$580,932
	Net operating income (loss)		-$121,732
	*Variable cost of goods manufactured = Units produced * Variable unit product cost
	*Variable selling and administrative expenses = Units sold * Variable selling and administrative expenses per unit sold
Ans. 2 a	In absorption costing method, the unit product cost is the sum of all manufacturing costs per unit
	whether it is fixed or variable.
	Unit product cost under Absorption Costing:
	Direct materials	$9.90
	Direct labor	$4.55
	Variable Overhead per unit	$7.66
	Fixed overhead per unit   ($303,600 / 92,000)	$3.30
	Manufacturing cost per unit	$25.41
	*Fixed overhead per unit = Fixed overhead / Units produced
Ans. 2 b	SIREN COMPANY
	Income Statement
	For 2020
	Absorption Costing
	PARTICULARS		Amount
	Sales   (80,000 * $33)		$2,640,000
	Less: Cost of goods sold
	Opening inventory	$0
	Add: Cost of goods manufactured (92,000*$25.41)	$2,337,720
	Cost of goods available for sale	$2,337,720
	Less: Ending inventory [(92,000 - 80,000) * $25.41]	-$304,920
	Cost of goods sold (total)		$2,032,800
	Gross margin		$607,200
	Selling & Administrative expenses:
	Fixed	$277,332
	Variable    (80,000 * $5.15)	$412,000
	Total Selling and administrative expenses		$689,332
	Net operating income (loss)		-$82,132
	*Variable selling & administrative expenses   =   Units sold * Variable selling and administrative expenses per unit
	*Ending inventory   = (Units produced - Units sold) * Production cost per unit