Financial and Managerial Accounting: Information for Decisions
Financial and Managerial Accounting: Information for Decisions
6th Edition
ISBN: 9780078025761
Author: John J Wild, Ken Shaw Accounting Professor, Barbara Chiappetta Fundamental Accounting Principles
Publisher: McGraw-Hill Education
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Chapter 19, Problem 9E

1.

a.

To determine

The product cost per unit under absorption costing.

1.

a.

Expert Solution
Check Mark

Explanation of Solution

Given,

Direct material per unit is $60 per unit.
Direct labor per unit is $22 per unit.
Variable overhead per unit is $8 per unit.
Fixed overhead per unit is $12 per unit (working note).

The calculation of the product cost per unit using absorption costing is,

    Particulars Amount ($) Per Unit
    Direct Material 60
    Direct Labor 22
    Variable Overheads 8
    Fixed Overheads 12
    Total 102
    Table (1)

The product cost per unit under absorption costing is $102.

Working Note:

The formula to calculate fixed overheads per unit is,

    Fixed Overhead Per Unit= Annual Fixed Overheads Units Produced

Substitute $528,000 for annual fixed overheads and 44,000 for units produced.

    Fixed Overhead Per Unit= $528,000 44,000 =$12

Thus, the product cost per unit using absorption costing is $102.

b.

To prepare: Income statement for the year under absorption costing.

    C.S. Company Income Statement (Absorption Costing)
    Particulars Amount ($) Amount($)
    Sales ( 36,000×$140 ) 5,040,000
    Cost of Goods sold (working note) (3,672,000)
    Gross Margin 1,368,000
    Variable Selling and Administrative Cost ( 36,000×$11 ) (396,000)
    Fixed Selling and Administrative Cost (105,000) (501,000)
    Net Income 867,000
    Table (2)

The net income under absorption costing is $867,000.

Working Note:

Given,
Number of Units Sold is 36,000.
Product Cost per Unit is $102(calculated in part 1).

Calculation of cost of goods sold is,

    Cost of Goods Sold=Number of Units Sold×Cost Per Unit

Substitute 36,000 for number of units sold and $102 for cost per unit in the above formula.

    Cost of Goods Sold=36,000×$102 =$3,672,000

Thus, the net income under absorption method is $867,000.

2.

a.

To determine: The product cost per unit under variable costing.

Given,

Direct material per unit is $60 per unit.
Direct labor per unit is $22 per unit.
Variable overhead per unit is $8 per unit.

The calculation of the product cost per unit using variable method is,

    Particulars Amount ($) Per Unit
    Direct Material 60
    Direct Labor 22
    Variable Overheads 8
    Total 90
    Table (3)

Thus, the product cost per unit is $90.

b.

To prepare: Income statement for the year under variable costing.

    C.S. Company Income Statement (Variable Costing)
    Particulars Amount ($) Amount($)
    Sales ( 36,000×$140 ) 5,040,000
    Direct Material Cost ( 36,000×$60 ) (2,160,000)
    Direct Labor Cost ( 36,000×$22 ) (792,000)
    Variable Overhead ( 36,000×$8 ) (288,000)
    Variable Selling and Administrative Cost ( 36,000×$11 ) (396,000) (3,636,000)
    Contribution Margin 1,404,000
    Fixed Overhead (528,000)
    Fixed Selling and Administrative Cost (105,000) (633,000)
    Net Income 771,000
    Table (4)

Thus, the net income of the company under variable costing is $771,000.

b.

To determine

To prepare: Income statement for the year under absorption costing.

b.

Expert Solution
Check Mark

Explanation of Solution

    C.S. Company Income Statement (Absorption Costing)
    Particulars Amount ($) Amount($)
    Sales ( 36,000×$140 ) 5,040,000
    Cost of Goods sold (working note) (3,672,000)
    Gross Margin 1,368,000
    Variable Selling and Administrative Cost ( 36,000×$11 ) (396,000)
    Fixed Selling and Administrative Cost (105,000) (501,000)
    Net Income 867,000
    Table (2)

The net income under absorption costing is $867,000.

Working Note:

Given,
Number of Units Sold is 36,000.
Product Cost per Unit is $102(calculated in part 1).

Calculation of cost of goods sold is,

    Cost of Goods Sold=Number of Units Sold×Cost Per Unit

Substitute 36,000 for number of units sold and $102 for cost per unit in the above formula.

    Cost of Goods Sold=36,000×$102 =$3,672,000

Thus, the net income under absorption method is $867,000.

2.

a.

To determine: The product cost per unit under variable costing.

Given,

Direct material per unit is $60 per unit.
Direct labor per unit is $22 per unit.
Variable overhead per unit is $8 per unit.

The calculation of the product cost per unit using variable method is,

    Particulars Amount ($) Per Unit
    Direct Material 60
    Direct Labor 22
    Variable Overheads 8
    Total 90
    Table (3)

Thus, the product cost per unit is $90.

b.

To prepare: Income statement for the year under variable costing.

    C.S. Company Income Statement (Variable Costing)
    Particulars Amount ($) Amount($)
    Sales ( 36,000×$140 ) 5,040,000
    Direct Material Cost ( 36,000×$60 ) (2,160,000)
    Direct Labor Cost ( 36,000×$22 ) (792,000)
    Variable Overhead ( 36,000×$8 ) (288,000)
    Variable Selling and Administrative Cost ( 36,000×$11 ) (396,000) (3,636,000)
    Contribution Margin 1,404,000
    Fixed Overhead (528,000)
    Fixed Selling and Administrative Cost (105,000) (633,000)
    Net Income 771,000
    Table (4)

Thus, the net income of the company under variable costing is $771,000.

2.

a.

To determine

The product cost per unit under variable costing.

2.

a.

Expert Solution
Check Mark

Explanation of Solution

Given,

Direct material per unit is $60 per unit.
Direct labor per unit is $22 per unit.
Variable overhead per unit is $8 per unit.

The calculation of the product cost per unit using variable method is,

    Particulars Amount ($) Per Unit
    Direct Material 60
    Direct Labor 22
    Variable Overheads 8
    Total 90
    Table (3)

Thus, the product cost per unit is $90.

b.

To prepare: Income statement for the year under variable costing.

    C.S. Company Income Statement (Variable Costing)
    Particulars Amount ($) Amount($)
    Sales ( 36,000×$140 ) 5,040,000
    Direct Material Cost ( 36,000×$60 ) (2,160,000)
    Direct Labor Cost ( 36,000×$22 ) (792,000)
    Variable Overhead ( 36,000×$8 ) (288,000)
    Variable Selling and Administrative Cost ( 36,000×$11 ) (396,000) (3,636,000)
    Contribution Margin 1,404,000
    Fixed Overhead (528,000)
    Fixed Selling and Administrative Cost (105,000) (633,000)
    Net Income 771,000
    Table (4)

Thus, the net income of the company under variable costing is $771,000.

b.

To determine

To prepare: Income statement for the year under variable costing.

b.

Expert Solution
Check Mark

Explanation of Solution

    C.S. Company Income Statement (Variable Costing)
    Particulars Amount ($) Amount($)
    Sales ( 36,000×$140 ) 5,040,000
    Direct Material Cost ( 36,000×$60 ) (2,160,000)
    Direct Labor Cost ( 36,000×$22 ) (792,000)
    Variable Overhead ( 36,000×$8 ) (288,000)
    Variable Selling and Administrative Cost ( 36,000×$11 ) (396,000) (3,636,000)
    Contribution Margin 1,404,000
    Fixed Overhead (528,000)
    Fixed Selling and Administrative Cost (105,000) (633,000)
    Net Income 771,000
    Table (4)

Thus, the net income of the company under variable costing is $771,000.

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