Castaway Company reports the following first year production cost information:Units produced53,000 unitsUnits sold51,000 unitsSales price$150 per unitDirect labor$8 per unitDirect materials$4 per unitVariable overhead$41 per unitFixed overhead$3,339,000 in totalOperating expenses$1,000,000 in totala. Determine the net income using variable costing.b. Determine the net income using absorption costing.
What will be an ideal response?
a. Product cost: $8 DL + $4 DM + $41 VOH = $53 per unit under variable costing
NI = ($150 - $53)(51,000 units) - $3,339,000 - $1,000,000 = $608,000
b. Product cost: $53 + ($3,339,000/53,000) FOH = $116 per unit under absorption costing
NI = ($150 - $116)(51,000 units) - $1,000,000 = $734,000
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What will be an ideal response?