Question

Schubert Corporation manufactures and sells one product. In the company's first year of operations, the variable cost consisted solely of direct materials of $75 per unit. The annual fixed costs were $450,000 of direct labor cost, $1,950,000 of fixed manufacturing overhead expense, and $1,140,000 of fixed selling and administrative expense. The company does not have any variable manufacturing overhead costs or variable selling and administrative expenses. During its first year of operations, the company produced 32,000 units and sold 28,000 units. The company's only product is sold for $215 per unit.

Required:
a. Assume the company uses super-variable costing. Compute the unit product cost for the year and prepare an income statement for the year.
b. Assume that the company uses a variable costing system that assigns $10 of direct labor cost to each unit that is produced. Compute the unit product cost for the year and prepare an income statement for the year.

Answer 1

To compute the unit product cost and prepare an income statement using super-variable costing, the unit product cost is $75 and the net income is $380,000. Using variable costing with $10 of direct labor cost assigned to each unit produced, the unit product cost is $85 and the net income is also $380,000.

Step-by-step explanation:

To compute the unit product cost and prepare an income statement using super-variable costing, we need to determine the total variable costs. In this case, since there are no variable manufacturing overhead costs or variable selling and administrative expenses, the variable cost per unit consists solely of direct materials, which is $75 per unit. Therefore, the unit product cost is $75.

To prepare the income statement, we need to calculate the total fixed costs and the total sales revenue. The fixed costs consist of direct labor cost ($450,000), fixed manufacturing overhead expense ($1,950,000), and fixed selling and administrative expense ($1,140,000), which sum to a total of $3,540,000. The total sales revenue is calculated by multiplying the unit selling price ($215) by the number of units sold (28,000), which equals $6,020,000.

The income statement can be summarized as follows:

Schubert Corporation

• Sales Revenue: $6,020,000
• Total Variable Costs: $75/unit x 28,000 units = $2,100,000
• Total Fixed Costs: $3,540,000
• Net Income: $6,020,000 - $2,100,000 - $3,540,000 = $380,000

Using variable costing with $10 of direct labor cost assigned to each unit produced, the unit product cost is $85 ($75 direct materials + $10 direct labor). The income statement would look the same as in the super-variable costing case, as the fixed costs and sales revenue remain unchanged.