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Question
Castaway Company reports the following first year production cost information:Units produced 53,000 units
Units sold 51,000 units
Sales price $150 per unit
Direct labor $8 per unit
Direct materials $4 per unit
Variable overhead $2,173,000 in total
Fixed overhead $3,339,000 in total
Operating expenses $1,000,000 in total
a. Determine the net income using variable costing.
b. Determine the net income using absorption costing.
a. Product cost: $8 DL + $4 DM + ($2,173,000/53,000) 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
Answer
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