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Homework answers / question archive / Stark and Company would like to evaluate one of the product lines that they sell to the defense department

Stark and Company would like to evaluate one of the product lines that they sell to the defense department

Accounting

Stark and Company would like to evaluate one of the product lines that they sell to the defense department. Every month the Stark and Company produce an identical number of units, although the sales in units differ from month to month. 
Selling price $105 Units in beginning inventory 110 Units produced 6,400 Units sold 6,100 Units in ending inventory 600 Variable costs per unit: Direct materials $62 Direct labour $48 Variable manufacturing overhead $3 Variable selling and administrative $7 Fixed costs: Fixed manufacturing overhead $64,000 Fixed selling and administrative $35,600 
Submission Instructions:  1. Under variable costing, identify the unit product cost for the month. 2. What is the unit product cost for the month under absorption costing? 3. Prepare an income statement for the month using the contribution format and the variable costing method. 4. Prepare an income statement for the month using the absorption costing method. 

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1) Computation of Unit Product cost- Variable Costing
  Amount $
Direct Material $62.00 
Direct labor $48.00 
Variable Manufacturing overheads $3.00 
Variable Product cost $113.00 
2) Computation of Absorption Costing Unit Product Cost:
  Amount
Direct Material $62.00 
Direct labor $48.00 
Variable Manufacturing overheads $3.00 
Fixed Manufacturing overheads (64000/6400) $10.00 
Unit Product cost $123.00 
3) Variable Costing Income Statement
  Amount $
No. of Unit Sold 6100
Sales $640,500.00 
Less: Variable cost  
   variable cost of goods sold $689,300.00 
   Variable selling expense $42,700.00 
Contribution margin ($91,500.00)
Fixed expense:  
   Fixed Manufacturing overheads $64,000.00 
   Fixed selling expense $35,600.00 
Net operating Income ($191,100.00)

 

4) Absorption Costing Income Statement
  Amount $
No. of Unit Sold 6100
Sales $640,500.00 
Less: Cost of Goods sold @$123 $750,300.00 
Gross Margin ($109,800.00)
Less: Selling and distribution expense  
Variable Expense @$7 $42,700.00 
Fixed Expense $35,600.00 
Net operating income ($188,100.00)

 

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