Homework Problem #1

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?