3. Variable and Absorption Costing

Follow the directions below and answer the following problem.

Maxwell Company manufactures and sells a single product. The following costs were incurred during 2014, the companys first year of operations:

Variable Costs per Unit:

Production:

Direct Materials $16

Direct Labor 8

Variable Manufacturing Overhead 2

Selling and Administrative 4

Fixed Costs per Year:

Manufacturing Overhead $ 140,000

Selling and Administrative 110,000

During 2014, the company produced 20,000 units and sold 18,000 units. The selling price of the companys product is $50 per unit.

Required: 1. Assume that the company uses the absorption costing method:

a. Compute the cost to produce one unit of product.

b. Prepare an income statement for 2014.

2. Assume that the company uses the variable or direct costing method:

a. Compute the cost to produce one unit of product.

b. Prepare an income statement for 2014.

For Question A for both 1 & 2 answer below:

Compute the Cost to Produce One Unit of Product

1. Absorption Costing 2. Variable Costing

1B. Income Statement Absorption Costing

2B. Income Statement Variable Costing