2. a. The unit product cost under variable costing would be:
Direct materials ... $ 6
Direct labor ... 9
Variable manufacturing overhead .. 3
Unit product cost ... $18
b. The variable costing income statement:
Sales (20,000 units × $50 per unit)... $1,000,000
Less variable expenses:
Variable cost of goods sold:
Beginning inventory ... $ 0
Add variable manufacturing costs
(25,000 units × $18 per unit)... 450,000
Goods available for sale... 450,000
Less ending inventory
(5,000 units × $18 per unit) ... 90,000
Variable cost of goods sold... 360,000 *
Variable selling expense
(20,000 units × $4 per unit) ... 80,000 440,000
Contribution margin ... 560,000
Less fixed expenses:
Fixed manufacturing overhead ... 300,000
Fixed selling and administrative expense ... 190,000 490,000
Net operating income... $ 70,000
*The variable cost of goods sold could be computed more simply as:
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