1. The unit product cost under the variable costing method is computed as
follows:
Direct materials ... $ 4
Direct labor ... 7
Variable manufacturing overhead ... 1
Unit product cost ... $12
With this figure, the variable costing income statements can be pre-
pared:
Year 1 Year 2
Sales... $1,000,000 $1,250,000
Less variable expenses:
Variable cost of goods sold
(@ $12 per unit) ... 480,000 600,000
Variable selling and administrative ex-
penses (@ $2 per unit)... 80,000 100,000
Total variable expenses... 560,000 700,000
Contribution margin ... 440,000 550,000
Less fixed expenses:
Fixed manufacturing overhead... 270,000 270,000
Fixed selling and administrative expenses .... 130,000 130,000
Total fixed expenses... 400,000 400,000
Net operating income ... $ 40,000 $ 150,000
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