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 Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper	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.