Aerial, Inc., produces and sells a unique type of TV antenna. The company has just opened a new...
Question:
Aerial, Inc., produces and sells a unique type of TV antenna. The company has just opened a new plant to manufacture the antenna, and the following cost and revenue data have been provided for the first month of the plant's operation:
| Beginning inventory | 0 |
| Units produced | 40,500 |
| Units sold | 36,000 |
| Selling price per unit | $88 |
| Selling and administrative expenses: | |
| Variable per unit | $5 |
| Fixed (total) | $528,000 |
| Manufacturing costs | |
| Direct materials cost per unit | $17.6 |
| Direct labor cost per unit | $8.8 |
| Variable manufacturing overhead cost per unit | $4 |
| Fixed manufacturing overhead cost (total) | $972,000 |
Because the new antenna is unique in design, management is anxious to see how profitable it will be and has asked that an income statement be prepared for the month.
Required:
1. Assume that the company uses absorption costing.
a. Determine the unit product cost. (Do not round intermediate calculations and round your final answer to 1 decimal place.)
b. Prepare an income statement for the month.
2. Assume that the company uses variable costing.
a. Determine the unit product cost. (Do not round intermediate calculations and round your final answer to 1 decimal place.)
b. Prepare a contribution format income statement for the month.
Absorption vs. Variable Costing:
The difference between absorption and variable costing lies in the unit product cost that is used to determine the cost of goods sold and the value of the ending inventory. Absorption costing includes the fixed manufacturing cost in the unit product cost calculation while variable costing does not.
Answer and Explanation: 1
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1. a - The unit product cost under absorption costing is:
| Manufacturing costs | |
| Direct materials cost per unit | $17.6 |
| Direct labor cost per unit | $8.8 |
| ... |
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Managerial Decision Making: Absorption vs. Variable Costing
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Managers make decisions about setting prices using absorption and variable costing. Learn more about the different types of costing and explore a comparison of variable costing versus absorption costing.
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