Question

Siren Company builds custom fishing lures for sporting goods stores. In its first year of operations, 2017, the company incurred the following costs.

Variable Costs per Unit
Direct materials		$8.18
Direct labor		$3.76
Variable manufacturing overhead		$6.32
Variable selling and administrative expenses		$4.25
Fixed Costs per Year
Fixed manufacturing overhead		$251,160
Fixed selling and administrative expenses		$229,009

Siren Company sells the fishing lures for $27.25. During 2017, the company sold 80,000 lures and produced 92,000 lures.

Assuming the company uses variable costing, calculate Siren’s manufacturing cost per unit for 2017. (Round answer to 2 decimal places, e.g.10.50.)

Manufacturing cost per unit

$

Prepare a variable costing income statement for 2017. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Assuming the company uses absorption costing, calculate Siren’s manufacturing cost per unit for 2017. (Round answer to 2 decimal places, e.g.10.50.)

Manufacturing cost per unit

$

Prepare an absorption costing income statement for 2017. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Answer 1

1. (a) Variable costing

Direct material	8.18
Direct labor	3.76
Variable mfg overhead	6.32
Total	18.26

(b)

Sales	2,180,000
Less: Variable COGS (80,000 x 18.26)	1,460,800
Variable selling exp (80,000 x 4.25)	340,000
Contribution margin	379,200
Fixed mfg overhead	251,160
Fixed selling expenses	229,009
Net Income/ (Loss)	(100,969)

2. (a) Absorption costing

Direct material	8.18
Direct labor	3.76
Variable mfg overhead	6.32
Fixed mfg overhead (251,160/ 92,000)	2.73
Total	20.99

(b)

Sales	2,180,000
Less: COGS (80,000 x 20.99)	1,679,200
Gross profit	500,800
Variable selling expense (80,000 x 4.25)	340,000
Fixed selling expense	229,009
Net Income/ (Loss)	(68,209)