ScholasticPak Company manufactures backpacks used by students. A typical backpack has the following price and variable costs

Budgeted fixed overhead in the company’s first year of operations, was $900,000. Actual and planned production was 150,000 units, of which 125,000 were sold. ScholasticPak incurred the following selling and administrative expenses.

Required:
1. Compute the product cost per backpack under

(a) variable costing and

(b) absorption costing.
2. Prepare income statements for the year using

(a) variable costing and

(b) absorption costing.
3. Reconcile the income reported under the two methods by analyzing the two key places where the income statements differ.

Transcribed Image Text:

Sales price Direct material Direct labor........ Variable overhead $45 15 6 9