Meyers Inc. produces an oak rocking chair that is designed to ease back problems. The chairs sell for $350 each. The results of last year’s operations are as follows:
Units in beginning inventory. 0
Units produced during the year. 35,000
Units sold during the year. 30,000
Units left in ending inventory. 5,000
Variable manufacturing costs per unit.
Direct materials $80
Direct labor 20
Variable manufacturing overhead 15
Variable selling and administrative 10
Total variable cost per unit $125
Fixed manufacturing overhead $700,000
Fixed selling and administration 650,000
Total fixed costs $1,350,000
Required:
a) Determine the unit product cost under absorption costing and variable costing.
b) Prepare an income statement using variable costing.
c) Explain the difference in operating income for the two costing systems, absorption and variable.