Question

Baxtell Company manufactures and sells a single product. The following costs were incurred during the company’s first year of operations:     Variable costs per unit:         Manufacturing:         Direct materials   $   25   Direct labour      12   Variable manufacturing overhead      3   Variable selling and administrative      5   Fixed costs per year:         Fixed manufacturing overhead      200,000   Fixed selling and administrative expense      110,000   During the year, the company produced 25,000 units and sold 21,000 units. The selling price of the company’s product is $65 per unit. Required: 1. Assume that the company uses absorption costing. a. Compute the unit product cost. b. Prepare an income statement for the year. (Do not leave any empty spaces; input a 0 wherever it is required.) 2. Assume that the company uses variable costing. a. Compute the unit product cost. b. Prepare an income statement for the year. (Do not leave a

Answer 1

1.a). Caluclation of Unit Product Cost Direct Materials Direct Lbor Variable Manufacturing overhead Fixed Manufacturing overhead Unit Product Cost Fixed manufacturing overhead cost per unit = $200000/25000 = 58 Baxtell Company Absorption Costing Income Statement Sales Cost of Goods sold Gross Margin Selling and administrative Expenses Variable selling and administrative Expenses $105,000 Fixed selling and administrative Expenses $110,000 Income from Operations $1,365,000 $1,008,000 $ 357,000 $215,000 S 142.000 Working Notes : Sales = 21,000*$65 = $1,365,000 Cost of Goods sold = 21,000*$48 = $1,008,000 Variable Selling and administrative = 21,000*35 = $105,000

2. a). Caluclation of Unit Product Cost Direct Material Direct Labor Variable Manufacturing overhead 3 40 S 2. b). $1,365,000 $ 840,000 $ 525,000 $ 105,000 $ 420,000 Baxtell Company Variable costing Income statement sales Less: variable Cost of Goods sold Gross Contribution Margin Less: variable selling and administrative cost Contribution Margin Less: Fixed Expenses Fixed Manufacturing Overhead $ 200,000 Fixed selling and administrative Expenses $ 110,000 Total Fixed Cost Income from operations Working Notes: Sales = 21,000*$65 = $1,365,000 Variable Cost of Goods sold = 21,000*$40 = $840.000 Variable Selling and administrative = 21,000*$5 = $105,000 $ 310,000 $ 110,000