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1. Exercise 8-7 Variable and Absorption Costing Unit Product Costs; Income Statements [LO1, LO2] Baxtell 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 Direct labour Variable manufacturing overhead Variable selling and administrative Fixed costs per year: Fixed manufacturing overhead Fixed selling and administrative expense $ 39 21 3 6 302,500 177,80 0 During the year, the company produced 30,250 units and sold 25,400 units. The selling price of the company's product is $90 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. 2. Problem 8-13 Absorption and Variable Costing; Production Constant, Sales Fluctuate [LO1, LO2, LO3, LO4] Leander Office Products Inc. produces and sells small storage and organizational products for office use. During the first month of operations, the products sold well. Andrea Leander, the owner of the company, was surprised to see a loss for the month on her income statement. This statement was prepared by a local bookkeeping service recommended to her by her bank manager. The statement follows: LEANDER OFFICE PRODUCTS INC. Income Statement Sales (45,600 units) Variable expenses: Variab le cost of goods sold* Variab le selling and administr $ 264,480 $ 119,472 35,112 154,584 ative expenses Contrib ution margin Fixed expenses: Fixed manufact uring overhead Fixed selling and administr ative expenses 109,896 108,864 13,224 122,088 Operatin g loss $ (12,192) *Consists of direct materials, direct labour, and variable manufacturing overhead. Leander is discouraged over the loss shown for the month, particularly since she had planned to use the statement to encourage investors to purchase stock in the new company. A friend who is an accountant insists that the company should be using absorption costing rather than variable costing. He argues that if absorption costing had been used, the company would probably have reported a profit for the month. Selected cost data relating to the product and to the first month of operations follow: 57,60 0 45,60 0 Units produced Units sold Variable costs per unit: Direct materials Direct labour $ $ 1.20 1.17 Variable manufacturing overhead Variable selling and administrative expenses $ 0.25 $ 0.77 Required: 1. Complete the following: a. Compute the unit product cost under absorption costing. (Round your answer to 2 decimal places.) b. Redo the company's income statement for the month using absorption costing. c. Reconcile the variable and absorption costing operating income (loss) figures. (Loss amounts should be entered with a minus sign.) 2. Not available in Connect. 3. During the second month of operations, the company again produced 57,600 units but sold 69,600 units. (Assume no change in total fixed costs.) a. Prepare a contribution format income statement for the month using variable costing. b. Prepare an income statement for the month using absorption costing. c. Reconcile the variable costing and absorption costing operating income figures. 3. Problem 8-16 Comparison of Costing Methods [LO1, LO2, LO3, LO4] Canada Brewers Ltd. has just created a new division to manufacture and sell single-cup coffee makers under licence from a major single-cup coffee producer. The facility is highly automated and so has high monthly fixed costs, as shown in the following schedule of budgeted monthly costs. This schedule was prepared based on an expectation of a monthly production volume of 2,250 units. During August, the following activity was recorded: Units produced Units sold Selling price per unit 2,250 1,40 0 $ 100 Manufacturing costs: Variable cost per unit: Direct material $ 19 Direct labour 17 Variable overhead 13 Total fixed overhead $47,250 Selling and administrative costs: Variable 5% of sales 12,60 Fixed 0 Required: 1. Prepare an income statement for the month ended August 31, under absorption costing. 2. Prepare an income statement for the month ended August 31, under variable costing. 3. Beginning with absorption costing, reconcile the absorption costing and variable costing income figures for the month