Variable And Absorption Costing Unit

Variable And Absorption Costing Unit

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Exercise 8-7 Variable and Absorption Costing Unit Product Costs; Income Statements [LO1, LO2]

Baxtell Company manufactures and sells a single product. The following costs were incurred during the company’s first year of operations:


Variable costs per unit:
Manufacturing:
Direct materials	$	39
Direct labour		21
Variable manufacturing overhead		3
Variable selling and administrative		6
Fixed costs per year:
Fixed manufacturing overhead		302,500
Fixed selling and administrative expense		177,800

During the year, the company produced 30,250 units and sold 25,400 units. The selling price of the company’s product is $90 per unit.
*Required:*

1.	Assume that the company uses absorption costing.
		a.	Compute the unit product cost.

b.	Prepare an income statement for the year.

2.	Assume that the company uses variable costing.

a.	Compute the unit product cost.

b.	Prepare an income statement for the year.