Exercise 8-7 Variable and Absorption Costing Unit Product Costs; Income Statements [LO1, LO2]

Baxtell Company manufactures and sells a single product. The following costs were incurred during the company’s first year of operations:

 

 

 

 

  Variable costs per unit:

 

 

 

 

     Manufacturing:

 

 

 

 

       Direct materials

$

39

 

 

       Direct labour

 

21

 

 

       Variable manufacturing overhead

 

3

 

 

     Variable selling and administrative

 

6

 

 

  Fixed costs per year:

 

 

 

 

       Fixed manufacturing overhead

 

302,500

 

 

       Fixed selling and administrative expense

 

177,800

 

 

 

      During the year, the company produced 30,250 units and sold 25,400 units. The selling price of the company’s product is $90 per unit.

 Required:

 

1.

Assume that the company uses absorption costing.

 

 

 a.

Compute the unit product cost.

 

 

 

         

     

b.

Prepare an income statement for the year.

 

 

             

2.

Assume that the company uses variable costing.

 

a.

Compute the unit product cost.

 

 

             

 

b.

Prepare an income statement for the year.

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