Question

. Lee Corporation, which has only one product, has provided the following data concerning its most recent month of operations: Selling price $95 Units in beginning inventory 100 IJnits produced 6,200 Units sold 5,900 Units in ending inventory 400 Variable costs per unit: Direct materials $42 Direct labor $28 Variable manufacturing overhead $1 Variable selling and administrative $5 Fixed costs: Fixéd manufacturing overhead $62,000 Fixed selling and administrative $35,400 The company produces the same number of units every month, although the sales in units vary from month to month. The company's variable costs per unit and total fixed costs have been constant from month to month. Assume direct labor is a variable cost. Required: a. What is the unit product cost for the month under variable costing? b. What is the unit product cost for the month under absorption costing? c. Calculate the difference in variable costing and absorption costing net operating incomes for the month.

Answer 1

(A) Unit product cost for the month under variable costing-

	Amount ($)
Direct materials	42
Direct Labor	28
Variable manufacturing overhead	1
Unit Variable cost	71

(B) Unit product cost for the month under absorption costing-

	Amount ($)
Direct materials	42
Direct Labor	28
Variable manufacturing overhead	1
Fixed manufacturing overhead ($62,000 / 6,200)	10
Unit Absorption cost	81

(C) Difference in variable costing and absorption costing net operating incomes=

Unit unsold * Fixed manufacturing overhead

= (6,200 - 5,900) * $10

= 300 * $10 = $3,000