# Answered Essay: 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

Total variable cost per unit                \$32

Fixed costs per month:

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).

(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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