Problem 6 - 21: Prepare & Reconcile Variable Costing Statements

Problem 6 - 21: Prepare & Reconcile Variable Costing Statements

Given:

Linden Company manufactures and sells a single product. Cost data for the product follow:

Variable costs per unit:

Direct materials $6.00

Direct labor 12.00

Variable factory overhead 4.00

Variable selling & administrative 3.00

Total variable costs per unit $25.00

Fixed costs per month:

Fixed manufacturing overhead $240,000

Fixed selling & administrative 180,000

Total fixed cost per month $420,000

The product sells for $40 per unit. Production and sales data for May and June, the first two months

of operations, are as follows; $40.00

Units Units

Produced Sold

May 30,000 26,000

June 30,000 34,000

Income statements prepared by the Accounting department, using absorption costing, are

presented below:

May June

Sales $1,040,000 $1,360,000

Cost of goods sold

Beginning inventory $0 $120,000 $120,000

Add cost of goods manufactured 900,000 900,000 $900,000

Goods available for sale $900,000 $1,020,000

Less ending inventory 120,000 0 $120,000

Cost of goods sold $780,000 $1,020,000

Gross margin $260,000 $340,000

Selling & administrative expenses 258,000 282,000 $258,000 $282,000

Operating income $2,000 $58,000

Required:

1. Determine the unit product cost under:

a. Absorption costing

b. Variable costing

Absorption Variable

Costing Costing

Direct materials $6.00 $6.00

Direct labor 12.00 12.00

Variable manufacturing overhead 4.00 4.00

Fixed manufacturing overhead ($240,000/30,000) 8.00

$30.00 $22.00

2. Prepare variable...