1. a. The unit product cost under absorption costing would be:
Direct materials ... $ 6
Direct labor ... 9
Variable manufacturing overhead ... 3
Total variable costs ... 18
Fixed manufacturing overhead ($300,000 ÷ 25,000 units) . 12
Unit product cost ... $30
b. The absorption costing income statement:
Sales (20,000 units × $50 per unit)... $1,000,000
Less cost of goods sold:
Beginning inventory... $ 0
Add cost of goods manufactured
(25,000 units × $30 per unit) ... 750,000
Goods available for sale ... 750,000
Less ending inventory
(5,000 units × $30 per unit) ... 150,000 600,000
Gross margin... 400,000
Less selling and administrative expenses
[(20,000 units × $4 per unit) + $190,000] .. 270,000
Net operating income... $ 130,000
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