Chapter 4A, Problem 4A.3E

Super-Variable Costing and Variable Costing Unit Product Costs and Income Statements LO4—2. LO4—6

Kelly Company manufactures and sells one product. The following information pertains to each of the company’s first two years of operations:

The company does not incur any variable manufacturing overhead costs or variable selling and administrative expenses. During its first year of operations, Kelly produced 50,000 units and sold 40,000 units. During its second year of operations, it produced 50,000 units and sold 60,000 units. The selling price of the company’s product is $50 per unit.

Required:

1. Assume the company uses super-variable costing:
1. Compute the unit product cost for Year 1 and Year 2.
2. Prepare an income statement for Year 1 and Year 2.
2. Assume the company uses a variable costing system that assigns $10 of direct labor cost to each unit produced:
1. Compute the unit product cost for Year 1 and Year 2.
2. Prepare an income statement for Year 1 and Year 2.
3. Prepare a reconciliation that explains the difference between the super-variable costing and variable costing net operating incomes in Years 1 and 2.