The Dorset Corporation produces and sells a single product. The following data refer to the year just completed: Beginning inventory 0 Units produced 9,000 Units sold 7,000 Selling price per unit $ 47 Selling and administrative expenses: Variable per unit $ 4 Fixed per year $ 58,000 Manufacturing costs: Direct materials cost per unit $ 10 Direct labor cost per unit $ 6 Variable manufacturing overhead cost per unit $ 5 Fixed manufacturing overhead per year $ 90,000 Assume that direct labor is a variable cost. Required: a) Prepare an income statement for the year using absorption costing b) Prepare an income statement for the year using variable costing c) Reconcile the absorption costing and variable costing net operating income figures
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Q.no.1
The Dorset Corporation produces and sells a single product. The following data refer to the year just completed:
|
Beginning inventory |
|
0 |
|
Units produced |
|
9,000 |
|
Units sold |
|
7,000 |
|
Selling price per unit |
$ |
47 |
|
Selling and administrative expenses: |
|
|
|
Variable per unit |
$ |
4 |
|
Fixed per year |
$ |
58,000 |
|
|
|
|
|
Direct materials cost per unit |
$ |
10 |
|
Direct labor cost per unit |
$ |
6 |
|
Variable manufacturing overhead cost per unit |
$ |
5 |
|
Fixed manufacturing overhead per year |
$ |
90,000 |
Assume that direct labor is a variable cost.
Required:
a) Prepare an income statement for the year using absorption costing
b) Prepare an income statement for the year using variable costing
c) Reconcile the absorption costing and variable costing net operating income figures
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