5. Direct and absorption costing

5. Direct and absorption costing

The information that follows pertains to XYZ Products for the year ended December 31, 20X8.

factory overhead

factory overhead

Variable

Fixed

Inventory, 1/1/X8

24,000 units

Units manufactured

80,000

Units sold

104,000

Inventory, 12/31/X8

23000 units

Manufacturing costs:

Direct materials

$4 per unit

Direct labor

$5 per unit

Variable

$9 per unit

Fixed

$300,000

Selling & administrative expenses:

$2 per unit

$136,000

 

 

Direct materials

Direct labor

    

 

Direct materials4.00Direct labor5.00Variable factory overhead9.00

  

 

1.Direct costing.
$

4.00
$

5.00
Variable factory overhead $

9.00
Unit cost  $18.00
2.Absorption costing.
Fixed factory overhead 1.70
($136000/80000) $20.50
Assuming a unit cost of $26 per

 

The unit selling price is $26. Assume that costs have been stable in recent years.

  

Homework

  

a.      
Prepare an income statement for the year ended December 31, 20X8, by using direct costing.

b.     
Prepare an income statement for the year ended December 31, 20X8, by using absorption costing.

 

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