(Answered): Stark Corporation manufactures and sells a single product. Cost data for the product are given below…

Stark Corporation manufactures and sells a single product. Cost data for the product are given below:

Variable costs per unit:

Direct materials $10

Direct labor 14

Variable manufacturing overhead 5

Variable selling and administrative 3

Total variable cost per unit $32

Fixed costs per month:

Fixed manufacturing overhead $600,000

Fixed selling and administrative 300,000

Total fixed cost per month $900,000

The product sells for $80 per unit. Production and sales data for August follow:

There was no beginning inventory.

Units Units

Produced Sold

August 25,000 20,000

Required:

(a)Determine the unit product cost under:

Absorption costing

Variable costing

Throughput costing

(b)Prepare a variable costing income statement for August.

(c)Prepare an absorption costing income statement for August.

(d)Explain why the operating income is different in parts (a) and (b).

Expert Answer

(a)

Variable costs per unit:
	Direct materials		10
	Direct labor		14
	Variable factory overhead		5	$29.00
	Variable selling & administrative		3
		Total variable costs per unit	$32.00

Fixed costs per month:
	Fixed manufacturing overhead		600,000	$24
	Fixed selling & administrative		300,000
		Total fixed cost per month	900,000	$53

The product sells for $80 per unit. Production and sales data for august


			Units	Units
			Produced	Sold
august			25000	20000

(c)
Income statementsusing absorption costing,is presented below:
:
					august
	Sales				1600000
	Cost of goods sold
		Beginning inventory			$0
		Add cost of goods manufactured			1325000
		Goods available for sale			1325000
		Less ending inventory			265000 –
		Cost of goods sold			1060000
	Gross margin				540000
	Selling & administrative expenses				360000,
	Operating income				180000


(a)	The unit product cost under:

					Absorption	Variable
					Costing	Costing
	Direct materials				10	10
	Direct labor				14	14
	Variable manufacturing overhead				5	5
	Fixed manufacturing overhead ($600000/25,000)				24
			production unit cost		53	29

(b)

Stark CorporationVariable Costing Income Statements


		august
Sales (20,000 X $80)		1600,000
Variable expenses:
	Variable cost of goods sold	580,000
	Variable selling & administrative	60,000
	Total variable expenses	640000
Contribution margin		960,000
Fixed expenses:
	Fixed manufacturing overhead	$600,000
	Fixed selling & administrative	300,000
	Total fixed expenses	$900,000
Operating income		60000
	(d)
When production is more than sales then the fixed manufacturing overhead is deferred in inventory that causes a higher net operating income under absorption costing than under variable costing.so the operating income is different in part a & b

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