Problem 7-16:

Problem 7-16:

1.compute the unit product cost for each year under:

a. Absorption costing.

b. Variable costing.

unit product cost | Year 1 | Year 2 |

Under variable costing variable manufacturing cost | $8 | $8 |

Under Absorption costingvariable manufacturing cost fixed manufacturing overhead costtotal Absorption cost per unit | $8$15$23 | $8$12$20 |

2. Prepare a variable costing income statement for each year, using the contribution approach.

Variable costing: year1 year2

Sales $700,000 $700,000

Less: Variable expenses:

Beginning inventory $0 $0

+ Variable manufacturing $160,000 $200,000

Cost

Less: Ending inventory $0 $40,000

V.CGS $160,000 $160,000

Add: Variable selling &

Administrative expense $20,000 $20,000

per unit sold

contribution margin $180,000 $180,000

Less: Fixed manufactured $300,000 $300,000

Overhead

Fixed selling & administrative $200,000 $200,000

Net income $80,000 $80,000

3. Reconcile the variable costing and absorption costing net operating income figures for each year.

year1 year2

Variable costing net operating income $80,000 $80,000

Add: Fixed manufactured overhead costs

Deferred in inventory under absorption $0...