Chapter 6.A, Problem 2E

EXERCISE 6A-2 Super-Variable Costing and Variable Costing Unit Product Costs and Income Statements LO6-2, LO6-6

Lyons Company manufactures and sells one product. The following information pertains to the company's first year of operations:

Variable cost per unit:
Direct materials		$13
Fixed costs per year:
Direct labour		$750,000
Fixed manufacturing overhead		$420,000
Fixed selling and administrative expenses	$110,000

The company does not incur any variable manufacturing overhead costs or variable selling and administrative expenses. During its first year of operations, Lyons produced 60,000 units and sold 52,000 units. The selling price of the company's product is $40 per unit.

Required:

1. Assume the company uses super-variable costing:
a. Compute the unit product cost for the year.
b. Prepare an income statement for the year.
2. Assume the company uses a variable costing system that assigns $12.50 of direct labor cost to each unit produced.
a. Compute the unit product cost for the year.
b. Prepare an income statement for the year.
3. Prepare a reconciliation that explains the difference between the super-variable costing and variable costing net operating incomes.