Zeitgeist Company manufactures silicon sleeves for MP3 players. In August of last year, Zeitgeist began producing the colorful sleeves. During the month of August, 16,000 were produced, and 14,750 were sold at $6.95 each. The following costs were incurred:
Direct materials ....................$26,880
Direct labor ...........................6,720
Variable overhead ....................5,920
Fixed overhead .....................28,160
A selling commission of 8% of sales price was paid. Administrative expenses, all fixed, amounted to $37,890.
Required:
1. Calculate the unit cost and the cost of ending inventory under absorption costing.
2. Calculate the unit cost and the cost of ending inventory under variable costing.
3. What is the contribution margin per unit?
4. Zeitgeist believes that multicolored sleeves will really takeoff after one year of sales. Management thinks sales this August will be twice as high as sales last August. Prepare an income statement for August of this year using the assumed higher level of sales. Which costing method should be used-absorption costing or variable costing?