Problem 1: (20 points) Cinnabar, Inc, has provided the following data for the ye

Question

Problem 1: (20 points) Cinnabar, Inc, has provided the following data for the year: irect materials $10 per unit irect labor ariable manufacturing overhead ixed manufacturing overhead ixed selling and administrative costs $15 per unit $20 per unit $25,000 per year $15,000 per year ales price $75 per unit 500 units ginning Finished Goods Inventory nits produced nits sold units 4,500 units Assume no beginning inventories Requirements a) Compute Cinnabar's unit product cost under absorption costing and variable costing. b) Prepare income statements for Cinnabar using absorption costing and variable costing

Explanation / Answer

a) Unit product cost under variable and absorption costing :

b) Income statement under absorption costing :

Variable costing income statement :

Variable Absorption Direct material 10 10 Direct labour 15 15 Variable manufacturing overhead 20 20 Fixed manufacturing overhead (25000/5000) 5 Unit product cost 45 50

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