NOTE I JUST DONT KNOW HOW TO SOLVE 4 Please HELP

Question 2

VARIABLE COSTING, ABSORPTION COSTING, INVENTORY VALUATION (LO 1)

Dynasty Company manufactures stackable plastic cubes that are used for storage in dorm rooms. In August 2010, Dynasty began producing multi-coloured cubes. During the month of August, 9,000 were produced, and 8,800 were sold at $7.50 each. The following costs were incurred:

Direct materials $10,800

Direct labour 6,750

Variable overhead 5,850

Fixed overhead 27,900

A selling commission of 10 percent of sales price was paid. Administrative expenses, all fixed, amounted to $23,000.

Required:

1 )Calculate the unit cost and the cost of ending inventory under absorption costing.

Particular	Amount
Direct materials ( $10,800 / 9,000)	1.20
Direct labour ( $6,750 / 9,000)	0.75
Variable overhead ( $5,850 / 9,000)	0.65
Fixed overhead ( $27,900 / 9,000)	3.10
Unit cost under absorption costing.	$5.70

Cost of ending inventory under absorption costing = (9,000 - 8,800) * $5.70 = $1,140

2)Calculate the unit cost and the cost of ending inventory under variable costing.

Particular	Amount
Direct materials ( $10,800 / 9,000)	1.20
Direct labour ( $6,750 / 9,000)	0.75
Variable overhead ( $5,850 / 9,000)	0.65
Unit cost under variable costing.	$2.60

Cost of ending inventory under variable costing = (9,000 - 8,800) * $2.60 = $520

3)What is the contribution margin per unit?

Variable costs per unit = Unit cost under variable costing + Selling commission

= $2.60 + (10 % * $7.50) = $3.35

Contributon per unit = Selling price - Variable costs per unit = $7.50 - $3.35 = $4.15

4) Dynasty believes that multi-coloured cubes will really take off after one year of sales. Management thinks August 2011 sales will be twice as high as August 2010 sales. Prepare an income statement for August 2011 using the assumed higher level of sales. Which costing method should be usedabsorption costing or variable costing?