Problem 6-18A (30 minutes) 1. The unit product cost under the variable costing is computed as follows: Direct materials $ 8 Direct labor 10 Variable manufacturing overhead 2 Variable costing unit product cost $20 With this figure, the variable costing income statements can be prepared: Year 1 Year 2 Sales $1,000,000 $1,500,000 Variable expenses: Variable cost of goods sold @ $20 per unit 400,000 600,000 Variable selling and administrative @ $3 per unit 60,000 90,000 Total variable expenses 460,000 690,000 Contribution margin 540,000 810,000 Fixed expenses: manufacturing overhead 350,000 350,000 Fixed selling and administrative 250,000 250,000 Total fixed expenses 600,000 600,000 Net operating income (loss) $ (60,000) $ 210,000 2. The reconciliation of absorption and variable costing follows: Year 1 Year 2 Variable costing net operating income (loss) $(60,000) $210,000 Add (deduct) fixed manufacturing overhead deferred in (released from) inventory under absorption costing (5,000 units × $14 per unit in Year 1; 5,000 units × $14 per unit in Year 2) 70,000 (70,000) Absorption costing net operating income $ 10,000 $140,000
Problem 6-18A (30 minutes) 1. The unit product cost under the variable costing is computed as follows: Direct materials $ 8 Direct labor 10 Variable manufacturing overhead 2 Variable costing unit product cost $20 With this figure, the variable costing income statements can be prepared: Year 1 Year 2 Sales $1,000,000 $1,500,000 Variable expenses: Variable cost of goods sold @ $20 per unit 400,000 600,000 Variable selling and administrative @ $3 per unit 60,000 90,000 Total variable expenses 460,000 690,000 Contribution margin 540,000 810,000 Fixed expenses: manufacturing overhead 350,000 350,000 Fixed selling and administrative 250,000 250,000 Total fixed expenses 600,000 600,000 Net operating income (loss) $ (60,000) $ 210,000 2. The reconciliation of absorption and variable costing follows: Year 1 Year 2 Variable costing net operating income (loss) $(60,000) $210,000 Add (deduct) fixed manufacturing overhead deferred in (released from) inventory under absorption costing (5,000 units × $14 per unit in Year 1; 5,000 units × $14 per unit in Year 2) 70,000 (70,000) Absorption costing net operating income $ 10,000 $140,000
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