Question

Alpha company manufactures and sells two products: Product A and Product B. The following costs were incurred during the company’s first year of operations:

Variable cost per unit:
	Product A	Product B
Direct materials	$7	$6
Direct labor	$9	$7
Variable manufacturing overhead	$4	$7
Variable selling and administrative cost	$5	$3
Fixed cost per year:
Fixed manufacturing overhead	$320,000	$270,000
Fixed selling and administrative cost	$210,000	$150,000

During the year, the company produced 27,000 units of product A and sold 23,000 units and produced 18,000 units of product B and sold 17,000 units.

The selling price of product A and B is respectively: $72 and 67 per unit.

Required:

1.Compute the unit product cost of Product A and Product B.

2.Compute the profit per product (Product A and Product B).

Answer 1

Solution 1:

It is assumed that company is using variable costing to accounts for cost and profit.

Computation of unit product cost
Particulars	Product A	Product B
Direct Material	$7.00	$6.00
Direct labor	$9.00	$7.00
Variable manufacturing overhead	$4.00	$7.00
Unit Product Cost	$20.00	$20.00

Solution 2:

Computation of Profit per product
Particulars	Product A	Product B
Sales	$1,656,000.00	$1,139,000.00
Variable Cost:
Direct Material	$161,000.00	$102,000.00
Direct labor	$207,000.00	$119,000.00
Variable manufacturing overhead	$92,000.00	$119,000.00
Variable Selling and administrative Cost	$115,000.00	$51,000.00
Contribution	$1,081,000.00	$748,000.00
Fixed Cost:
Fixed manufacturing overhead	$320,000.00	$270,000.00
Fixed selling and administrative Cost	$210,000.00	$150,000.00
Net Profit	$551,000.00	$328,000.00