Dexter Corporation produces and sells a single product, a wooden hand loom for weaving small...
Question:
Dexter Corporation produces and sells a single product, a wooden hand loom for weaving small items such as scarves.
Selected cost and operating data relating to the product for two years are given below:
| Selling price per unit | $50 |
| Manufacturing costs: | |
| -Variable per unit produced: | |
| --Direct materials | $11 |
| --Direct labor | $6 |
| --Variable manufacturing overhead | $3 |
| -Fixed manufacturing overhead per year | $120,000 |
| Selling and administrative expenses: | |
| -Variable per unit sold | $4 |
| -Fixed per year | $70,000 |
| Year 1 | Year 2 | |
|---|---|---|
| Unit in beginning inventory | 0 | 2,000 |
| Units produced during the year | 10,000 | 6,000 |
| Units sold during the year | 8,000 | 8,000 |
| Units in ending inventory | 2,000 | 0 |
Required:
1. Assume the company uses absorption costing.
a. Compute the unit product cost in each year.
b. Prepare an income statement for each year.
2. Assume the company uses variable costing.
a. Compute the unit product cost in each year.
b. Prepare an income statement for each year.
3. Reconcile the variable costing and absorption costing net operating incomes.
Absorption Costing:
Absorption costing is the accounting method that records the total cost of accounts. It accounts for the total of direct materials, direct labor and manufacturing overhead. The cost center is divided into direct and indirect cost.
Answer and Explanation: 1
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View this answer1. a. Calculation of unit product cost:
| Particulars | Amount ($) |
| Direct material | 11 |
| Direct labor | 6 |
| Variable manufacturing overhead | 3 |
| Fixed... |
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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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