Dance Creations manufactures authentic Hawaiian hula skirts that are purchased for traditional Hawaiian celebrations, costume parties, and other functions. During its first year of business, the company incurred the following costs: Variable Cost per Hula Skirt Direct materials $ 9.60 Direct labor 3.40 Variable manufacturing overhead 1.05 Variable selling and administrative expenses 0.40 Fixed Costs per Month Fixed manufacturing overhead $ 16,125 Fixed selling and administrative expenses 4,950 Dance Creations charges $30 for each skirt that it sells. During the first month of operation, it made 1,500 skirts and sold 1,375.
Dance Creations manufactures authentic Hawaiian hula skirts that are purchased for traditional Hawaiian celebrations, costume parties, and other functions. During its first year of business, the company incurred the following costs:
| Variable Cost per Hula Skirt | |
|---|---|
| Direct materials | $ 9.60 |
| Direct labor | 3.40 |
| Variable manufacturing |
1.05 |
| Variable selling and administrative expenses | 0.40 |
| Fixed Costs per Month | |
| Fixed manufacturing overhead | $ 16,125 |
| Fixed selling and administrative expenses | 4,950 |
Dance Creations charges $30 for each skirt that it sells. During the first month of operation, it made 1,500 skirts and sold 1,375.
Required:
1. Assuming Dance Creations uses variable costing, calculate the variable
2. Complete a contribution margin income statement for the last month.
3. Assuming Dance Creations uses full absorption costing, calculate the full manufacturing cost per unit for the last month.
4. Complete a full absorption costing income statement.
6. Suppose next month Dance Creations expects to produce 1,500 hula skirts and sell 1,600. Without recreating the new income statements, calculate the difference in profit between variable costing and full absorption costing. Which would be higher?
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