Module+20000+Example+for+Absorption+and+Variable+Costing

Illuminating Lighting, Co. produced two kinds of lamps in 2010, the Long Lamp and the Bright Box. The following is information related to these two products:

Sales (units) Selling Price Direct Labor hours Manufacturing costs: Direct materials Direct labor Variable overhead Fixed overhead Nonmanufacturing costs: Variable selling Direct fixed selling Common fixed selling ||= 50,000 45,000 $9.75 60,000
 * ||= __**Long Lamp**__ ||= __**Bright Box**__ ||
 * Production (units)

$50,000 $75,000 $10,000 $30,000

$10,000 $5,000 $5,000 ||= 70,000 65,000 $12.50 50,000

$75,000 $45,000 $20,000 $20,000

$20,000 $7,500 $5,000 ||

Complete the following: 1) For both products, calculate the unit cost using both variable costing and absorption costing 2) Using absorption costing, create an income statement 3) Using variable costing, create and income statement 4) Prepare a segmented income statement

Calculations:

1) Unit cost of the Long Lamp:

Direct labor ($75,000/50,000) Variable overhead ($10,000/50,000) Variable cost per unit Fixed overhead ($30,000/50,000) Absorption cost per unit ||> $1.00 $1.50 __$0.20__ $2.70 __$0.60__ __$3.30__ || Unit cost of the Bright Box:
 * Direct materials ($50,000/50,000)

Direct labor ($45,000/10,000) Variable overhead ($20,000/70,000) Variable cost per unit Fixed overhead ($20,000/70,000) Absorption cost per unit ||> $1.07 $4.50 __$0.29__ $5.86 __$0.29__ __$6.15__ ||
 * Direct materials ($75,000/70,000)

2)Absorption costing income statement:

Less: Cost of goods sold [($3.30 X 45,000) + ($6.15 X 65,000)] Gross Profit Less: Selling expenses Operating income ||> $1,251,250 __$548,250__ $703,000 __$52,500__ __$650,500__ ||
 * Sales [($9.75 X 45,000) + ($12.50 X 65,000)]

3) Variable costing income statement:

Less: Variable cost of goods sold [($2.70 X 45,000) + ($5.86 X 65,000)] Variable selling expenses Contribution margin Less: Fixed overhead Fixed selling expenses Operating income ||> $1,251,250
 * Sales [($9.75 X 45,000) + ($12.50 X 65,000)]

$502,400 __$30,000__ $718,850

$50,000 __$22,500__ __$646,350__ ||

4)Segmented Income Statement:

Less variable expenses: Variable cost of goods sold Variable selling expenses Contribution margin Less direct fixed expenses: Fixed overhead Direct selling expenses Product margin Less common fixed expenses: Common selling expenses Operating income ||= __**Long Lamp**__ $438,750
 * Sales

$121,500 __$10,000__ $307,250

$30,000 __$5,000__ __$272,250__ ||= __**Bright Box**__ $812,500

$380,900 __$20,000__ $411,600

$20,000 __$7,500__ __$384,100__ ||= **__Total__** $1,251,250

$502,400 __$30,000__ $718,850

$50,000 __$12,500__ __$656,350__

__$10,000__ __$646,350__ ||