Question

Ross Corporation manufactures and sells one product. The following information pertains to the company's first year of operations: Variable costs per unit: Direct materials $81 Fixed costs per year Direct labor $1,008,000 Fixed manufacturing overhead $2,520,000 Fixed selling and administrative $1,440,000 The company does not have any variable manufacturing overhead costs or variable selling and administrative costs. During its first year of operations, the company produced 36,000 units and sold 30,000 units. There was no ending work-in-process inventory. The company's only product is sold for $251 per unit.

1. What is the unit product cost under super-variable costing?
2. What is the net operating income under super-variable costing?
3. Assume that the company uses a variable costing system that assigns $28 of direct labor cost to each unit that is produced. How much higher or lower is variable costing income compared to that under super-variable costing?
4. Assume that the company uses an absorption costing system that assigns both direct labor and fixed manufacturing costs to each unit that is produced. What is the unit product cost under this costing system?

Answer 1

Answer for each part is given seperately below.

1. What is the unit product cost under super-variable costing?

Super-variable costing. Super-variable costing only considers totally variable costs to be part of the cost of inventory. All other costs are charged to expense in the period incurred.

So variable unit cost = $ 81

2. What is the net operating income under super-variable costing

Contribution = 30000 *(251-81) = 5,100,000

Direct Labour = (1,008,000)

Fixed Overhead = (2,520,000)

Administrative = (1,440,000)

Net OI = 132,000 dollars

3. Assume that the company uses a variable costing system that assigns $28 of direct labor cost to each unit that is produced. How much higher or lower is variable costing income compared to that under super-variable costing?

Income with Labor cost = 30000 * (251-28-81) = 4,260,000

Fixed Overhead = (2,520,000)

Administrative = (1,440,000)

Net OI = 300,000 dollars

168,000 dollars more income under this approach.

4. Assume that the company uses an absorption costing system that assigns both direct labor and fixed manufacturing costs to each unit that is produced. What is the unit product cost under this costing system?

Mat cost per unit = 81 $

Lab cost per unit = 28 $

FOH per unit = 70 $ (2520000/36000)

Per unit cost under this approach is 179 $.