Kellen Company manufactures stackable plastic cubes that are used for storage in dorm rooms. In August 2008, Kellen began producing multicolored cubes. During the month of August, 9,000 were produced, and 8,800 were sold at $7.50 each. The following costs were incurred:
Direct materials $10,800
Direct labor 6,750
Variable overhead 5,850
Fixed overhead 27,900
A selling commission of 10 percent of sales price was paid. Administrative expenses, all fixed, amounted to $23,000.
Required
1. Calculate the unit cost and the cost of ending inventory under absorption costing.
2. Calculate the unit cost and the cost of ending inventory under variable costing.
3. What is the contribution margin per unit?
4. Kellen believes that multicolored cubes will really take off after one year of sales. Management thinks August 2009 sales will be twice as high as August 2008 sales. Costs are estimated to remain unchanged. What is the planned operating income for Kellen for August 2009? Did you use variable or absorption costing to determine it?