Variable Costing Discussion Problems

1. Erie Company manufactures a single product. Assume the following data for the year just
completed:

   

There were no units in inventory at the beginning of the year. During the year 30,000 units were
produced and 25,000 units were sold. Each unit sells for $35.

 
Requirement 1: Under absorption costing, the unit product cost would be: 

Unit fixed product cost = $82,500 30,000 = $2.75

Unit product cost = Variable product cost + Fixed product cost
= $8.00 + $2.75
= $10.75

Requirement 2: The company's net operating income under variable costing would be: 
2.  Slovick Inc., which produces a single product, has provided the following data for its most
recent month of operations:

   

There were no beginning or ending inventories.

 

Requirement 1: The unit product cost under absorption costing was: 

Unit fixed manufacturing overhead = $31,000 1,000 = $31

Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead cost +
Fixed manufacturing overhead cost = $79 + $82 + $7 + $31 = $199

Requirement 2: The unit product cost under variable costing was: 

Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead = $79 +
$82 + $7 = $168
3.  Kimwell Company, which has only one product, has provided the following data concerning
its most recent month of operations:

   
The company produces the same number of units every month, although the sales in units vary
from month to month. The company's variable costs per unit and total fixed costs have been
constant from month to month.

 Requirement 1: What is the net operating income for the month under variable costing? 

Requirement 2: What is the net operating income for the month under absorption costing? 
Unit fixed manufacturing overhead = $153,700 5,300 = $29
Unit product cost under absorption costing = $38 + $38 + $1 + $29 = $106

 
4.  Dominick Corporation manufactures a variety of products. The following data pertain to the
company's operations over the last two years:

   

Requirement 1. What was the absorption costing net operating income last year? 

Absorption costing net income

= Variable costing net operating income + Fixed manufacturing overhead deferred = $58,000 +
$30,000 = $88,000

Requirement 2: What was the absorption costing net operating income this year? 

Absorption costing net income = Variable costing net operating income - Fixed manufacturing
overhead released
= $67,000 - $31,000
= $36,000

 
5. Leibson Company, which has only one product, has provided the following data concerning its
most recent month of operations:

   

The company produces the same number of units every month, although the sales in units vary
from month to month. The company's variable costs per unit and total fixed costs have been
constant from month to month.

Required:

a. What is the unit product cost for the month under variable costing?

b. What is the unit product cost for the month under absorption costing?

c. Prepare a contribution format income statement for the month using variable costing.

d. Prepare an income statement for the month using absorption costing.

e. Reconcile the variable costing and absorption costing net operating incomes for the month. 
a. & b. Unit product costs

   

c. & d. Income statements

   

e. Reconciliation