5. Direct and absorption costing
The information that follows pertains to XYZ Products for the year ended December 31, 20X8.
|
Inventory, 1/1/X8 |
24,000 units |
|
Units manufactured |
80,000 |
|
Units sold |
104,000 |
|
Inventory, 12/31/X8 |
23000 units |
|
Manufacturing costs: |
|
|
Direct materials |
$4 per unit |
|
Direct labor |
$5 per unit |
|
Variable factory overhead |
$9 per unit |
|
Fixed factory overhead |
$300,000 |
|
Selling & administrative expenses: |
|
|
Variable |
$2 per unit |
|
Fixed |
$136,000 |
| 1.Direct costing. | |
| Direct materials | $4.00 |
| Direct labor | $5.00 |
| Variable factory overhead | $9.00 |
| Unit cost | $18.00 |
| 2.Absorption costing. | |
| Direct materials | 4.00 |
| Direct labor | 5.00 |
| Variable factory overhead | 9.00 |
| Fixed factory overhead | 1.70 |
| ($136000/80000) | $20.50 |
| Assuming a unit cost of $26 per |
The unit selling price is $26. Assume that costs have been stable in recent years.
Homework
a. Prepare an income statement for the year ended December 31, 20X8, by using direct costing.
b. Prepare an income statement for the year ended December 31, 20X8, by using absorption costing.