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Maxwell Company manufactures and sells a single product. The following costs were incurred during the companys first year of operations: VARIABLE COSTS PER UNIT: Manufacturing:
Maxwell Company manufactures and sells a single product. The following costs were incurred during the companys first year of operations: VARIABLE COSTS PER UNIT: Manufacturing: Direct materials. . . . . . . . . . . . . . . . . . . . . . . . . $18 Direct labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$7 Variable manufacturing overhead . . . . . . . . . . . . .... $2 Variable selling and administrative . . . . . . . . . . . . . . $2 Fixed costs per year: Fixed manufacturing overhead . . . . . . . . . . . . . . . $200,000 Fixed selling and administrative expenses . . . . . . . . $110,000 During the year, the company produced 20,000 units and sold 16,000 units. The selling price of the companys product is $50 per unit. Required: Assume that the company uses absorption costing: a. Compute the unit product cost. b. Prepare an income statement for the year. Assume that the company uses variable costing: a. Compute the unit product cost. b. Prepare an income statement for the year. The company's controller believes that the company should have set last years selling price at $51 instead of $50 per unit. She estimates the company could have sold 15,000 units at a price of $51 per unit, thereby increasing the company's gross margin by $2,000 and its net operating income by $4,000. Assuming the controller's estimates are accurate, do you think the price increase would have been a good idea
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