UHF Antennas, Inc., produces and sells a unique television antenna. The company has just opened a...
Question:
UHF Antennas, Inc., produces and sells a unique television antenna. The company has just opened a new plant to manufacture the antenna, and the following cost and revenue data have been reported for the first month of the new plant's operation:
| Beginning inventory | 0 |
| Units produced | 35,000 |
| Units sold | 30,000 |
| Sales price per unit | $50 |
| Selling and administrative expenses: | |
| Variable per unit | $2 |
| Fixed (total) | $360,000 |
| Manufacturing costs: | |
| Direct materials cost per unit | $9 |
| Direct labor cost per unit | $8 |
| Variable manufacturing overhead cost per unit | $3 |
| Fixed manufacturing overhead (total) | $350,000 |
Management is anxious to see how profitable the new antenna will be and has asked that an income statement be prepared for the month. Assume that direct labor is a variable cost.
a. Assuming that the company uses absorption costing, compute the unit product cost and prepare an income statement.
b. Assuming that the company uses variable costing, compute the unit product cost and prepare an income statement.
c. Reconcile the absorption costing and variable costing net operating income figures in (a) and (b) above.
Absorption vs. Variable Costing
The net income calculated using variable and absorption costing differs because in variable costing the fixed manufacturing overhead cost is treated as a period costs, while in absorption costing it is added to the value of the inventory sold and on hand.
Answer and Explanation:
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a)
The unit product cost is:
| Variable costs Manufacturing per unit: | |
| Direct materials | $9 |
| Direct labor | $8 |
| Variable manufacturing overhead | $3 |
| Unit... |
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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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