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Sheldon Company manufactures and sells a single product. The following costs are incurred to produce and sell the product. Variable costs per unit: Manufacturing: Direct
Sheldon Company manufactures and sells a single product. The following costs are incurred to produce and sell the product. Variable costs per unit: Manufacturing: Direct materials $ 4.00 Direct labor 2.00 Variable manufacturing overhead 1.50 Variable selling and administrative 1.00 Fixed costs per month: Fixed manufacturing overhead $ 25,000 Fixed selling and administrative 13,000 The selling price is $20 per unit. The company budgets to produce 5,000 units in April and 4,000 units in May. During April, the company produced 5,000 units and sold 4,500 units. During May, the company produced 4,000 units and sold 4,500. Required: 1. Assume the company uses absorption costing and a LIFO cost flow assumption: a. Compute the product (inventoriable) cost per unit. b. Prepare an income statement for the month of April. 2. Assume the company uses variable costing: a. Compute the product (inventoriable) cost per unit. b. Prepare an income statement for the month of April. 3. Assume the selling price and all per unit variable costs and total fixed costs remain the same in May as they were in April. Repeat parts 1 and 2 for May. 4. Explain why absorption costing income was higher in April than in May when the units Sold, selling price, and cost structure were the same in both months
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