Tempe Mechanical Company manufactures and sells a specific type of corrosion resistant flange. The following costs are incurred during the company's year 20XX of operations:
Variable Cost Per Unit:
Manufacturing:
Direct Materials $18
Direct Labor $ 7
Variable Manufacturing Overhead $ 2
Variable Selling & Administrative $ 2
Fixed Costs Per Year:
Fixed Manufacturing Overhead $200,000
Fixed Selling & Administrative Exp $110,000
During the year the company produced 20,000 units and sold 16,000 units. The product's selling price is $50 per unit.
Required:
1.Assume the company uses absorption costing:
a. Compute the unit product cost.
b. In good order and form, prepare an Income Statement for the year.
2. Assume the company uses variable costing:
a. Compute the unit product cost.
b. In good order and form, prepare an Income Statement for the year.
3. The company's Controller believes that the company should have set last year's selling price at $51 instead of $50 per unit. She estimates the company could have sold 15,000 units at the increased sales price, thereby increasing the company's gross margin by $2,000 and its net operating income by $4,000. Assuming the Controller's estimates are accurate, do you think the price increase would have been a good idea?