1. Ida Company produces a handcrafted musical instrument called a gamelan that is similar to a xylophone. The gamelans are sold for $949. Selected data for the companys operations last year follow:

Units in beginning inventory	0
Units produced	16,000
Units sold	13,000
Units in ending inventory	3,000
Variable costs per unit:
Direct materials	$ 210
Direct labor	$ 510
Variable manufacturing overhead	$ 48
Variable selling and administrative	$ 19
Fixed costs:
Fixed manufacturing overhead	$ 970,000
Fixed selling and administrative	$ 970,000

a. Assume that the company uses absorption costing. Compute the unit product cost for one gamelan. (Round your intermediate calculations and final answer to the nearest whole dollar amount.)

b.. Assume that the company uses variable costing. Compute the unit product cost for one gamelan.

2. Ida Company produces a handcrafted musical instrument called a gamelan that is similar to a xylophone. The gamelans are sold for $870. Selected data for the companys operations last year follow:

Units in beginning inventory	0
Units produced	260
Units sold	230
Units in ending inventory	30
Variable costs per unit:
Direct materials	$ 105
Direct labor	$ 325
Variable manufacturing overhead	$ 45
Variable selling and administrative	$ 15
Fixed costs:
Fixed manufacturing overhead	$ 65,000
Fixed selling and administrative	$ 21,000

The absorption costing income statement prepared by the companys accountant for last year appears below:

Sales	$ 200,100
Cost of goods sold	166,750
Gross margin	33,350
Selling and administrative expense	24,450
Net operating income	$ 8,900

a. Under absorption costing, how much fixed manufacturing overhead cost is included in the company's inventory at the end of last year?

b. Prepare an income statement for last year using variable costing.

3 Walsh Company manufactures and sells one product. The following information pertains to each of the companys first two years of operations:

Variable costs per unit:
Manufacturing:
Direct materials	$ 30
Direct labor	$ 16
Variable manufacturing overhead	$ 6
Variable selling and administrative	$ 5
Fixed costs per year:
Fixed manufacturing overhead	$ 400,000
Fixed selling and administrative expenses	$ 80,000

During its first year of operations, Walsh produced 50,000 units and sold 40,000 units. During its second year of operations, it produced 40,000 units and sold 50,000 units. The selling price of the companys product is $57 per unit.

1. Assume the company uses variable costing:

a. Compute the unit product cost for Year 1 and Year 2.

b. Prepare an income statement for Year 1 and Year 2.

2. Assume the company uses absorption costing:

a. Compute the unit product cost for Year 1 and Year 2.

b. Prepare an income statement for Year 1 and Year 2.

3. Reconcile the difference between variable costing and absorption costing net operating income in Year 1.

4. During Heaton Companys first two years of operations, it reported absorption costing net operating income as follows:

	Year 1	Year 2
Sales (@ $62 per unit)	$ 1,116,000	$ 1,736,000
Cost of goods sold (@ $38 per unit)	684,000	1,064,000
Gross margin	432,000	672,000
Selling and administrative expenses*	301,000	331,000
Net operating income	$ 131,000	$ 341,000

* $3 per unit variable; $247,000 fixed each year.

The companys $38 unit product cost is computed as follows:

Direct materials	$ 6
Direct labor	10
Variable manufacturing overhead	5
Fixed manufacturing overhead ($391,000 23,000 units)	17
Absorption costing unit product cost	$ 38

Production and cost data for the first two years of operations are:

	Year 1	Year 2
Units produced	23,000	23,000
Units sold	18,000	28,000

Required:

1. Using variable costing, what is the unit product cost for both years?

2. What is the variable costing net operating income in Year 1 and in Year 2?

3. Reconcile the absorption costing and the variable costing net operating income figures for each year.

5. High Country, Incorporated, produces and sells many recreational products. The company has just opened a new plant to produce a folding camp cot that will be marketed throughout the United States. The following cost and revenue data relate to May, the first month of the plants operation:

Beginning inventory	0
Units produced	38,000
Units sold	33,000
Selling price per unit	$ 85
Selling and administrative expenses:
Variable per unit	$ 3
Fixed (per month)	$ 560,000
Manufacturing costs:
Direct materials cost per unit	$ 17
Direct labor cost per unit	$ 8
Variable manufacturing overhead cost per unit	$ 3
Fixed manufacturing overhead cost (per month)	$ 646,000

Management is anxious to assess the profitability of the new camp cot during the month of May.

Required:

1. Assume that the company uses absorption costing.

a. Calculate the unit product cost.

b. Prepare an income statement for May.

2. Assume that the company uses variable costing.

a. Calculate the unit product cost.

b. Prepare a contribution format income statement for May.