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	$	10
Direct labor	$	7
Variable manufacturing overhead	$	3
Variable selling and administrative	$	3
Fixed costs per year:
Fixed manufacturing overhead	$	380,000
Fixed selling and administrative expenses	$	290,000

During the year, the company produced 38,000 units and sold 18,000 units. The selling price of the companys product is $61 per unit.

Required:

1.	Assume that the company uses absorption costing:

a.	Compute the unit product cost.

Unit product cost

$

b.	Prepare an income statement for the year. (Input all amounts as positive values except losses which should be indicated by a minus sign.)

Absorption Costing Income Statement
(Click to select)Gross marginNet operating income (loss)Selling and administrative expensesCost of goods soldSales	$
(Click to select)Selling and administrative expensesGross marginSalesCost of goods soldNet operating income (loss)
(Click to select)Contribution marginGross margin
(Click to select)Selling and administrative expensesCost of goods soldSalesNet operating income (loss)Gross margin
(Click to select)Net operating incomeNet operating loss	$

2.	Assume that the company uses variable costing:

a.	Compute the unit product cost.

Unit product cost

$

b.	Prepare an income statement for the year. (Input all amounts as positive values except losses which should be indicated by a minus sign.)

Variable Costing Income Statement
(Click to select)Variable selling and administrative expensesVariable cost of goods soldFixed manufacturing overheadNet operating income (loss)Fixed selling and administrative expensesContribution marginSales		$
Less: Variable expenses
(Click to select)Variable selling and administrative expensesVariable cost of goods soldNet operating income (loss)Fixed selling and administrative expensesFixed manufacturing overheadContribution marginSales	$
(Click to select)Variable selling and administrative expensesSalesNet operating income (loss)Variable cost of goods soldContribution marginFixed manufacturing overheadFixed selling and administrative expenses
(Click to select)Contribution marginGross margin
Less: Fixed expenses
(Click to select)Net operating income (loss)Variable cost of goods soldFixed manufacturing overheadFixed selling and administrative expensesVariable selling and administrative expensesSalesContribution margin
(Click to select)Variable cost of goods soldContribution marginNet operating income (loss)SalesFixed manufacturing overheadFixed selling and administrative expensesVariable selling and administrative expenses
(Click to select)Net operating lossNet operating income		$

3.

The companys controller believes that the company should have set last years selling price at $63 instead of $61 per unit. She estimates the company could have sold 17,000 units at a price of $63 per unit, thereby increasing the companys gross margin by $3,000 and its net operating income by $6,000.

a.

Assuming the controllers estimates are accurate, do you think the price increase would have been a good idea if the company uses absorption costing?

	Yes
	No

b.

Assuming the controllers estimates are accurate, do you think the price increase would have been a good idea if the company uses variable costing?

	Yes
	No