New Due In 6 Hours: 100 Words Minimum With References

New Due In 6 Hours 100 Words Minimum With References Only Do Letter A Compute product cost and prepare an income statement under variable and absorption costing

Polk Company specializes in manufacturing custom fishing lures, with various costs incurred in 2012. To analyze profitability, it is essential to calculate the cost per unit and prepare income statements under both variable and absorption costing methods. Variable costing considers only variable production costs, while absorption costing includes both fixed and variable costs. Understanding these distinctions aids in better cost control and decision-making. The following calculations and statements highlight Polk’s financial performance for 2012, providing insights for managerial and financial analysis.

Paper For Above instruction

Part (a): Variable Costing Manufacturing Cost per Unit

To determine Polk’s variable costing manufacturing cost per unit for 2012, sum all variable manufacturing costs and divide by total units produced:

Variable materials: $7.50

Variable labor: $2.45

Variable manufacturing overhead: $5.75

Variable selling & administrative expenses are not included in manufacturing costs under variable costing.

Calculation:

Variable manufacturing cost per unit = ($7.50 + $2.45 + $5.75) = $15.70

Therefore, Polk’s variable manufacturing cost per unit in 2012 was $15.70.

Part (b): Variable Costing Income Statement for 2012

Sales revenue:

80,000 units × $25 = $2,000,000

Variable costs:

  • Variable cost of goods sold (COGS): 80,000 units × $15.70 = $1,256,000
  • Variable selling & administrative expenses: 80,000 × $3.90 = $312,000

Total variable expenses: $1,256,000 + $312,000 = $1,568,000

Contribution margin:

$2,000,000 - $1,568,000 = $432,000

Fixed costs:

  • Fixed manufacturing overhead: $234,650
  • Fixed selling & administrative expenses: $240,100

Total fixed costs: $234,650 + $240,100 = $474,750

Net operating income (loss):

$432,000 - $474,750 = - $42,750

Part (c): Absorption Costing Manufacturing Cost per Unit

Under absorption costing, fixed manufacturing overhead is allocated to each unit produced:

Fixed manufacturing overhead per unit = Total fixed manufacturing overhead / Units produced

$234,650 / 95,000 units ≈ $2.47

Absorption costing unit cost:

Variable manufacturing cost ($15.70) + Fixed overhead per unit ($2.47) ≈ $18.17

Part (d): Absorption Costing Income Statement for 2012

Sales revenue:

80,000 × $25 = $2,000,000

Less: COGS (inventory valuation):

80,000 units × $18.17 ≈ $1,453,600

Gross profit:

$2,000,000 - $1,453,600 = $546,400

Less: Selling & administrative expenses:

Variable: $312,000

Fixed: $240,100

Total expenses:

$312,000 + $240,100 = $552,100

Net operating income:

$546,400 - $552,100 = - $5,700

Introduction and Conclusion

Analyzing the costs and income statements under both variable and absorption costing reveals significant differences in reported profitability. Variable costing provides insight into the contribution margin and short-term operational efficiency, showing a net loss in 2012. Conversely, absorption costing allocates fixed overhead to inventory, slightly improving reported income but potentially obscuring operational performance. These methods are vital for managerial decision-making, inventory valuation, and external reporting. Understanding the nuances in costing techniques enables Polk Company to evaluate its cost structure effectively and develop strategies for financial stability and growth.

References

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