Flaherty, Inc., has just completed its first year of operations. The unit costs on a normal costing basis are as follows: Manufacturing costs (per unit):        Direct materials (3 lbs. @ 1.40) $4.20      Direct labor (0.4 hr. @ 17.50) 7.00      Variable overhead (0.4 hr. @ 5.00) 2.00      Fixed overhead (0.4 hr. @ 6.00) 2.40         Total $15.60   Selling and administrative costs:        Variable $1.70 per unit    Fixed $221,000   During the year, the company had the following activity: Units produced 26,000   Units sold 23,400   Unit selling price $36   Direct labor hours worked 10,400   Actual fixed overhead was $11,200 less than budgeted fixed overhead. Budgeted variable overhead was $5,200 less than the actual variable overhead. The company used an expected actual activity level of 10,400 direct labor hours to compute the predetermined overhead rates. Any overhead variances are closed to Cost of Goods Sold. Required: 1. Compute the unit cost using (a) absorption costing and (b) variable costing.   Unit Cost Absorption costing   Variable costing   2. Prepare an absorption-costing income statement. Round your answers to the nearest cent. Flaherty, Inc.Absorption-Costing Income StatementFor the First Year of Operations Sales      Cost of Goods Sold     Less:     Overapplied Overhead         Gross profit           Operating income

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Chapter1: Financial Statements And Business Decisions
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Flaherty, Inc., has just completed its first year of operations. The unit costs on a normal costing basis are as follows:

Manufacturing costs (per unit):    
   Direct materials (3 lbs. @ 1.40) $4.20  
   Direct labor (0.4 hr. @ 17.50) 7.00  
   Variable overhead (0.4 hr. @ 5.00) 2.00  
   Fixed overhead (0.4 hr. @ 6.00) 2.40  
      Total $15.60  
Selling and administrative costs:    
   Variable $1.70 per unit
   Fixed $221,000  

During the year, the company had the following activity:

Units produced 26,000  
Units sold 23,400  
Unit selling price $36  
Direct labor hours worked 10,400  

Actual fixed overhead was $11,200 less than budgeted fixed overhead. Budgeted variable overhead was $5,200 less than the actual variable overhead. The company used an expected actual activity level of 10,400 direct labor hours to compute the predetermined overhead rates. Any overhead variances are closed to Cost of Goods Sold.

Required:

1. Compute the unit cost using (a) absorption costing and (b) variable costing.

  Unit Cost
Absorption costing  
Variable costing  

2. Prepare an absorption-costing income statement. Round your answers to the nearest cent.

Flaherty, Inc.Absorption-Costing Income StatementFor the First Year of Operations
Sales
    
Cost of Goods Sold
   
Less:    
Overapplied Overhead
       
Gross profit    
 
   
Operating income    

 

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