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Herro Corporation began operations in July and manufactured 40,000 units during the month with the following unit costs: Direct materials $7.00 Direct labor 4.00 Variable
Herro Corporation began operations in July and manufactured 40,000 units during the month with the following unit costs:
Direct materials $7.00
Direct labor 4.00
Variable overhead 3.00
Variable marketing cost 3.00
Total fixed factory overhead is $400,000 per month. During July, 35,000 units were sold at a price of $40, and fixed marketing and administrative expenses were $150,000.
Required:
- Calculate the unit product cost of each unit using absorption costing and variable costing.
- Prepare a variable costing income statement for Herro Corporation for the month of July.
- Explain how variable costing differs from absorption costing.
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