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Computing unit product costs & preparing income statements for Variable & Absorption Costing: Piedmont Company manufactures and sells a single product. The following costs were
Computing unit product costs & preparing income statements for Variable & Absorption
Costing:
Piedmont Company manufactures and sells a single product. The following costs were incurred
during the companys first year of operations:
Variable Cost Per unit:
Manufacturing:
Direct Materials
$6
Direct Labor
$9
Variable manufacturing overhead
$3
Variable selling and administrative
$4
Fixed Costs per year:
Fixed manufacturing overhead
$300,000
Fixed selling and administrative
$190,000
During the year, the company produced 25,000 units and sold 20,000 units. The selling price of
the companys product is $50 per unit.
Required:
1. Assume that the company uses absorption costing:
a. Compute the unit product cost.
b. Prepare an income statement for the year.
c. What is the value of ending inventory reported on the balance sheet at the end of
the year when the company uses absorption costing?
2. Assume that the company uses variable costing:
a. Compute the unit product cost.
b. Prepare an income statement for the year.
c. What is the value of ending inventory reported on the balance sheet at the end of
the year when the company uses variable costing?
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