# Question: Maxwell Company manufactures and sells a single product The following

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 . . . . . . . . . . . . \$2
Fixed costs per year:
Fixed manufacturing overhead . . . . . . . . . . . . . . . . \$200,000
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.
3. The company’s controller believes that the company should have set last year’s selling price at \$51 instead of \$50 per unit. She estimates the company could have sold 15,000 units at a price of \$51 per unit, thereby increasing the company’s gross margin by \$2,000 and its net operating income by \$4,000. Assuming the controller’s estimates are accurate, do you think the price increase would have been a good idea?

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