EXERCISE $6$A$-3$ Super$-$Variable Costing and Variable Costing Unit Product Costs and Income

Statements LO$6-2,$ LO$6-6$

Kelly Company manufactures and sells one product. The following information pertains to each of the company's first two years of operations:

$```$

Variable cost per unit:

Direct materials $............................$ $$12$

Fixed costs per year:

Direct labor $......................................$ $$500,000$

Fixed manufacturing overhead $.................$ $$450,000$

Fixed selling and administrative expenses $......$ $$180,000$

$```$

The company does not incur any variable manufacturing overhead costs or variable selling and administrative expenses. During its first year of operations, Kelly produced $50,000$ units and sold $40,000$ units. During its second year of operations, it produced $50,000$ units and sold $60,000$ units. The selling price of the company's product is $\backslash (\backslash$$ $50\backslash )$ per unit.

Required:

$1.$ Assume the company uses super$-$variable costing:

a$.$ Compute the unit product cost for Year $1$ and Year $2.$

b$.$ Prepare an income statement for Year $1$ and Year $2.$

$2.$ Assume the company uses a variable costing system that assigns $\backslash (\backslash$$ $10\backslash )$ of direct labor cost to each unit produced:

a$.$ Compute the unit product cost for Year $1$ and Year $2.$

b$.$ Prepare an income statement for Year $1$ and Year $2.$

$3.$ Prepare a reconciliation that explains the difference between the super$-$variable costing and variable costing net operating incomes in Years $1$ and $2.$