Variable Costing and Segment Reporting: Tools for Management

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

Variable costs per unit:

Manufacturing:

Direct materials $ 40

Direct Labor $ 24

Variable manufacturing overhead $ 8

Variable selling and administrative $ 6

Fixed Cost per year:

Fixed manufacturing overhead $ 400,000

Fixed selling and administrative Expenses $ 160,000

During its first year of operations, Flint produced 100,000 units and sold 80,000 units.

During its second year of operations it produced 80,000 units and sold 100,000 units. The selling price of the company's

product is $100.00 per unit.

Required:

1. Assume the company uses variable costing;

a) Compute the unit product cost for year 1 and year 2.

b) income statement for year 1 and year 2.

2. Assume the company uses absorption costing;

a) Compute the unit product cost for year 1 and year 2.

b) income statement for year 1 and year 2.

3. Explain the difference between variable costing and absorption costing net operating income in

year 1. Also, explain why the two net operating incomes differ in year 2.