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Cost of Goods Manufactured, using Variable Costing and Absorption Costing On March 31, the end of the first month of operations, Barnard Inc. manufactured 15,000 units and sold 12,000 units. The following income statement was prepared, based on the variable costing concept: Barnard Inc. Variable Costing Income Statement For the Year Ended March 31, 20Y1 Sales $2,160,000 Variable cost of goods sold: Variable cost of goods manufactured $1,620,000 Inventory, March 31 (324,000) Total variable cost of goods sold (1,296,000) Manufacturing margin $864,000 Total variable selling and administrative expenses (96,000) Contribution margin $768,000 Fixed costs: Fixed manufacturing costs $210,000 Fixed selling and administrative expenses 45,000 Total fixed costs (255,000) Operating income $513,000 Determine the unit cost of goods manufactured, based on (a) the variable costing concept and (b) the absorption costing concept. Variable costing $ Absorption costing

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Answer:

(a)unit cost of goods manufactured is $108.00

(b)unit cost of goods manufactured is $122.00

Explanation:

Varibale Product Costing = Direct Material + Direct Labor + Variable Overheads

Absorption Product Costing = Direct Material + Direct Labor + Variable Overheads + Fixed Overheads

(a) the unit cost of goods manufactured- the variable costing concept

Variable cost of goods manufactured ($1,620,000/15,000 units) = $108.00

unit cost of goods manufactured                                                     =  $108.00

(b)  the unit cost of goods manufactured - the absorption costing concept

Variable cost of goods manufactured ($1,620,000/15,000 units) = $108.00

Fixed manufacturing costs ($210,000/ 15,000 units)                     =    $14.00

unit cost of goods manufactured                                                     =  $122.00

The unit cost of goods manufactured is $108.00 and unit cost of goods manufactured is $122.00. The step-by-step calculation is as follows:

The formula for calculating Variable Product Costing is Direct Material + Direct Labor + Variable Overheads

The formula for calculating Absorption Product Costing is Direct Material + Direct Labor + Variable Overheads + Fixed Overheads

Therefore,  

a) Variable cost of goods manufactured using the variable costing concept ($1,620,000/15,000 units) = $108.00

unit cost of goods manufactured    = $108.00

b) the unit cost of goods manufactured using the absorption costing concept is Variable cost of goods manufactured ($1,620,000/15,000 units) = $108.00

Fixed manufacturing costs ($210,000/ 15,000 units) = $14.00

unit cost of goods manufactured = $122.00

Hence, it can be concluded that for a, $108.00 and for b, $122.00 is the correct answer.

Learn more about Variable Costing and Absorption here

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