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12 July, 02:45

Rey Company's single product sells at a price of $225 per unit. Data for its single product for its first year of operations follow. Direct materials $ 29 per unit Direct labor $ 37 per unit Overhead costs Variable overhead $ 15 per unit Fixed overhead per year $ 493,000 per year Selling and administrative expenses Variable $ 27 per unit Fixed $ 218,000 per year Units produced and sold 29,000 units 1. Prepare an income statement for the year using absorption costing 2. Prepare an income statement for the year using variable costing.

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  1. 12 July, 03:22
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    Part 1. Prepare an income statement for the year using absorption costing

    Sales ($225*29,000) 6,525,000

    Less Cost of Sales

    Opening Stock 0

    Add Cost of Manufactured Goods ($95.83*29,000) 2,842,000

    Less Closing Stock 0 2,842,000

    Gross Profit 3,683,000

    Less Expenses

    Selling and Administrative Expenses:

    Variable ($27*29,000) 783,000

    Fixed 493,000 218,000

    Net Income 2,682,000

    Part 2. Prepare an income statement for the year using variable costing

    Sales ($225*29,000) 6,525,000

    Less Cost of Sales

    Opening Stock 0

    Add Cost of Manufactured Goods ($81.00*29,000) 2,349,000

    Less Closing Stock 0 2,349,000

    Contribution 4,176,000

    Less Expenses

    Fixed Manufacturing Costs 493,000

    Selling and Administrative Expenses:

    Variable ($27*29,000) 783,000

    Fixed 493,000 218,000

    Net Income 2,682,000

    Explanation:

    Part 1. Prepare an income statement for the year using absorption costing

    Absorption Costing, also known as Full Costing includes Fixed Manufacturing as part of Product Cost.

    All Non - Manufacturing Costs are then Presented as Period Costs

    Product Cost Per Unit:

    Direct materials 29.00

    Direct labor 37.00

    Variable overhead 15.00

    Fixed Overhead 430000/29000 14.83

    Total Product Cost 95.83

    Part 2. Prepare an income statement for the year using variable costing

    Variable Costing, also known as Marginal Costing only includes Variable Manufacturing Costs as part of Product Costs

    Fixed Manufacturing and All Non - Manufacturing Costs are then Presented as Period Costs.

    Product Cost Per Unit:

    Direct materials 29.00

    Direct labor 37.00

    Variable overhead 15.00

    Total Product Cost 81.00
  2. 12 July, 05:24
    0
    absorption cost

    Sales revenue 6,525,000

    COGS (2,842,000)

    Gross Profit 3,683,000

    S&A expense (1,001,000)

    Operating Income 2,682,000

    variable cost

    Sales revenue 6,525,000

    Variable Cost (3,132,000)

    Contribution 3,393,000

    Fixed Cost (711,000)

    Net Income 2,682,000

    Explanation:

    Under absorption cost all the fixed cost are capitalized:

    units cost:

    493,000 / 29,000 units = 17 unit fixed overhead cost

    29 materials + 37 labor + 15 varaible overhead 17 fixed overhead = 98 unit cost

    Sales revenue 29,000 x 225 = 6,525,000

    COGS 29,000 x 98 = (2,842,000)

    Gross Profit 3,683,000

    Selling and adminsitrative cost:

    27 x 29,000 + 218,000 = (1,001,000)

    Operating Income 2,682,000

    Variable cost:

    29 materials + 37 labor + 15 varaible overhead + 27 S&A = 108 unit cost

    Sales revenue 29,000 x 225 = 6,525,000

    Variable Cost 29,000 x 108 = (3,132,000)

    Contribution 3,393,000

    Fixed Cost 493,000 + 218,000 = (711,000)

    Net Income 2,682,000
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