Question
Costner Company uses an absorption costing system in accounting for the single product it manufactures. The following selected data are for the year; Materials coast
Costner Company uses an absorption costing system in accounting for the single product it manufactures. The following selected data are for the year; Materials coast $1 per unit. Labor is $2 per unit. The company sells it products for $10 per unit. Fixed administrative expenses are $15,000.
The company produced 12,000 units and sold 10,000 units. Direct materials and direct labor are variable costs. One unit of direct material goes into each unit of finished goods. Overhead rates are based on a volume of 12,000 units and are $1.08 and $1.44 per unit for variable and fixed overhead, respectively. The ending inventory is the 2,000 units of finished goods on hand at the end of 2013. There was no inventory at the beginning of 2013.
1. Calculate production cost per unit under variable absorption costing.
2. Prepare an income statement for 2013 under variable costing.
3. Prepare an income statement for 2013 under absorption costing.
4. Explain the reason for the difference in net income between b and c.
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