QUESTIONS

1. Assume that the company uses absorption costing. a. Compute the unit product cost in each year. b. Prepare an income statement for each year.

2. Assume that the company uses variable costing. a. Compute the unit product cost in each year. b. Prepare an income statement for each year.

3. Reconcile the variable costing and absorption costing operating incomes.

$ 50 Dexter Company produces and sells a single product, a wooden hand loom for weaving small items such as scarves. Selected cost and operating data relating to the product for two years are given below: Selling price per unit Manufacturing costs: Variable per unit produced: Direct materials 11 Direct labour 6 Variable overhead 3 Fixed per year 120,000 Selling and administrative costs: Variable per unit sold 5 Fixed per year 70,000 Units in beginning inventory Units produced during the year Units sold during the year Units in ending inventory Year 1 -0- 10,000 8,000 2,000 Year 2 2,000 6,000 8,000 -0