Problem 6-18 (continued)
2 b. The variable costing income statements appear below:
Year 1
Year 2
Year 3
Sales ………………………………………………………………
$3,480,000
$2,900,000
$3,770,000
Variable expenses:
Variable cost of goods sold @ $36 per unit …………..
2,160,000
1,800,000
2,340,000
Variable selling and administrative @ $2 per unit …..
120,000
100,000
130,000
Total variable expenses ………………………………………
2,280,000
1,900,000
2,470,000
Contribution margin …………………………………………..
1,200,000
1,000,000
1,300,000
Fixed expenses:
Fixed manufacturing overhead …………………………..
960,000
960,000
960,000
Fixed selling and administrative ………………………….
240,000
240,000
240,000
Total fixed expenses ………………………………………….
1,200,000
1,200,000
1,200,000
Net operating income (loss) ………………………………..
$ 0
$ (200,000)
$ 100,000
3 a. The unit product costs under absorption costing:
Year 1
Year 2
Year 3
Direct materials ………………………………
$20
$20.00
$20
Direct labor ……………………………………
12
12.00
12
Variable manufacturing overhead ……….
4
4.00
4
Fixed manufacturing overhead …………..
*16
**12.80
***24
Absorption costing unit product cost ……
$52
$48.80
$60
* $960,000 ÷ 60,000 units = $16 per unit.
** $960,000 ÷ 75,000 units = $12.80 per unit.
*** $960,000 ÷ 40,000 units = $24 per unit.
