Question :
Evaluate product cost and purpose an income statement under absorption and variable costing.
Polk Company builds custom fishing lures for sporting goods stores. In its 1st year of operations, 2012, the company incurred the subsequent costs.
Variable Cost per Unit
Direct materials $7.50
Direct labor $2.45
Variable manufacturing overhead $5.75
Variable selling and administrative expenses $3.90
Fixed Costs per Year
Fixed manufacturing overhead $234,650
Fixed selling and administrative expenses $240,100
Polk Company sells the fishing lures for $25. In 2012, the company sold 80,000 lures and produced 95,000 lures.
Instructions
(a) Consider the company uses variable costing; evaluate Polk's manufacturing cost per unit for 2012.
(b) Prepare a variable costing income statement for 2012.
(c) Consider the company uses absorption costing; evaluate Polk's manufacturing cost per unit for 2012.
(d) Purpose an absorption costing income statement for 2012.
Required
a) In this case, would it be better to use the variable or absorption costing technique, and why?
b) What are the benefits of the two techniques?
c) Which technique would lead to the best decision when a competitor is submitting a lower bid for your product?