Question

Dexter Corporation produces and sells a single product, a wooden hand loom for weaving small items such

as scarves. Selected cost and operating data relating to the product for two years are given below:

Selling price per unit ...................................... $50

Manufacturing costs:

Variable per unit produced:

Direct materials ...................................... $11

Direct labor ............................................. $6

Variable overhead ................................... $3

Fixed per year ............................................ $120,000

Selling and administrative costs:

Variable per unit sold .................................. $4

Fixed per year ............................................ $70,000

	Year 1	Year 2
Units in beginning inventory	0	2,000
Units produced during the year	10,000	6,000
Units sold during the year	8,000	8,000
Units in ending inventory	2,000	0

1. Assume the company uses absorption costing, compute the unit product cost in year 1

2.Assume the company uses absorption costing, compute the unit product cost in year 2

3. Assume the company uses absorption costing, compute the net operating income for year 1.

4. Assume the company uses variable costing, compute the unit product cost in year 1.

5. Assume the company uses variable costing, compute the net operating income for year 2.

Answer 1

Answer:
1	Unit product cost in year 1 under absortion costing
	particulars	per unit cost($)
	Direct materials	11
	Direct labor	6
	Variable manuf. overhead	3
	Fixed manuf. over head	12
	(120000/10000)
	Unit product Cost	32
2	Unit product cost in year 2 under absortion costing
	particulars	per unit cost($)
	Direct materials	11
	Direct labor	6
	Variable manuf. overhead	3
	Fixed manuf. over head
	(120000/6000)	20
	Unit product Cost	40
3	Using absorption costing Net operating income for year 1
	Particulars		amount($)
	Sales	8000*50	400000
	less:cost of goods sold		256000
	opening stock	0
	add;cost of goods manuftrd(10000*32)	320000
	less;closing stock	64000
	(2000*32)	256000
	Gross profit		144000
	Less: Marketing & admn.exp
	variable(8000*4)	32000
	fixed expenses	70000	102000
	Net operating income		42000
4	Unit product cost in year 1 under variable costing
	particulars	per unit cost($)
	Direct materials	11
	Direct labor	6
	Variable manuf. overhead	3
	Fixed manuf. over head
	Unit product Cost	20
5	Using variable costing Net operating income for year 2
	Particulars		amount($)
	Sales	8000*50	400000
	less: variable cost of goods sold
	opening stock	(2000*20)	40000
	add; variable cost of goods manuftrd	(6000*20)	120000
	less;closing stock		0
			160000
	Gross contribution margin		240000
	Less: variable marketing & admn.exp		32000
	(8000*4)
	Contribution margin		208000
	Less: Period exp
	Fixed manuf. Overhead exp		120000
	Fixed admn. Overhead exp		70000
	Net operating Income		18000