1. Absorption and Variable Costing

Boley Company is a small company that produces a single product.Following is its cost structure:

Number of units produced each year ....................................... 6,000

Variable cost per unit

Direct Materials ............................................................... $ 2

Direct Labor ...................................................................... 4

Variable Manufacturing Overhead ............................... 1

Variable Selling and Administrative Expenses...................... 3

Fixed Cost per Year :

Fixed Manufacturing Overhead .......................................$ 30,000

Fixed Selling and Administrative Expenses .................. 10,000

Required :

1. Compute for the unit cost under absorption costing.
2. Compute for the unit cost under variable costing.
3. What will be the effect of each method on the Statement of Comprehensive Income.
4. If you are the manager to decide as to what method to use, which one will you prefer.Why?