Bairstow Company manufactures and sells a single product. The following costs were incurred during 2021, the company’s first year of operations:   Variable Costs per unit:     Production:                     Direct materials $ 6.00                   Direct labour $ 9.00                   Variable Manufacturing Overhead $ 3.00  Selling and administrative $ 4.00 FIXED COSTS PER YEAR   Manufacturing Overhead $ 300,000 Selling and administrative $ 190,000   During 2021, the company produced 25,000 units and sold 20,000 units. The selling price of the company’s product is $ 50 per unit.   Required: 1. Assume that the company uses  the absorption costing method: Compute the cost to produce one unit of product. Prepare an income statement for 2021. Reconcile the variable costing and absorption costing operating incomes. Explain the reasons for the differences between the variable costing and absorption costing net incomes.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Bairstow Company manufactures and sells a single product. The following costs were incurred during 2021, the company’s first year of operations:

 

Variable Costs per unit:

 

 

Production:

 

                  Direct materials

$ 6.00

                  Direct labour

$ 9.00

                  Variable Manufacturing Overhead

$ 3.00

 Selling and administrative

$ 4.00

FIXED COSTS PER YEAR

 

Manufacturing Overhead

$ 300,000

Selling and administrative

$ 190,000

 

During 2021, the company produced 25,000 units and sold 20,000 units. The selling price of the company’s product is $ 50 per unit.

 

Required: 1. Assume that the company uses  the absorption costing method:

  1. Compute the cost to produce one unit of product.
  2. Prepare an income statement for 2021.
  3. Reconcile the variable costing and absorption costing operating incomes. Explain the reasons for the differences between the variable costing and absorption costing net incomes. 
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