Variable Costing

Problem 1. Square Firm makes and markets triangles. The firms cost structure is as follows:

Manufacturing cost = $8.75 per unit + $105,825 per month.

Selling and administrative cost = $2.85 per unit + $45,800 per month

At the end of January, the firm had 2,700 units in inventory with a total cost of $23,625. During February, the firm produced 8,500 units and sold 6,500. The selling price is $36.90 per unit.

Assume the firm uses variable costing. Prepare an income statement for the month of February.

Problem 2. Triangle Firm makes and markets squares. The firms cost structure is as follows:

Manufacturing cost = $8.75 per unit + $105,825 per month.

Selling and administrative cost = $2.85 per unit + $45,800 per month

At the end of January, the firm had 2,700 units in inventory with a total cost of $35,856. During February, the firm produced 8,500 units and sold 6,500. The selling price is $36.90 per unit.

Prepare an income statement assuming absorption costing for the month of February.

Problem 3. Prepare a reconciliation of the variable costing net income from Problem 1 and the absorption costing net income from Problem 2.