Question: Variable Costing, Absorption Costing, Inventory Valuation Zeitgeist Company manufactures silicon sleeves for MP3 players. In August 2011, Zeitgeist began producing the colorful sleeves. During the month of August, 16,000 were produced, and 14,750 were sold at $6.95 each. The following costs were incurred:
Direct materials $26,880
Direct labor 6,720
Variable overhead 5,920
Fixed overhead 28,160
A selling commission of 8 percent of sales price was paid. Administrative expenses, all fixed, amounted to $37,890.
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. Conceptual Connection: Zeitgeist believes that multicolored cubes will really take off after one year of sales. Management thinks August, 2012 sales will be twice as high as August, 2011 sales. Prepare an income statement for August, 2012 using the assumed higher level of sales. Which costing method should be used-absorption costing or variable costing?