Maxwell 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. . . . . . . . . . . . . . . . . . . . . . . . . . . $18
Direct labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $7
Variable manufacturing overhead . . . . . . . . . . . . . $2
Variable selling and administrative . . . . . . . . . . . . . . $5
Fixed costs per year:
Fixed manufacturing overhead . . . . . . . . . . . . . . . . . $160,000
Fixed selling and administrative expenses . . . . . . . . $110,000
During the year, the company produced 20,000 units and sold 16,000 units. The selling price of the company’s product is $50 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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March 31, 2012

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