# Exercise 8-7 variable and absorption costing unit product costs;

Exercise 8-7 Variable and Absorption Costing Unit Product Costs; Income Statements [LO1, LO2]

 Baxtell Company manufactures and sells a single product. The following costs were incurred during the company’s first year of operations:

 Variable costs per unit: Manufacturing: Direct materials \$ 39 Direct labour 21 Variable manufacturing overhead 3 Variable selling and administrative 6 Fixed costs per year: Fixed manufacturing overhead 302,500 Fixed selling and administrative expense 177,800 During the year, the company produced 30,250 units and sold 25,400 units. The selling price of the company’s product is \$90 per unit. Required:

 1. Assume that the company uses absorption costing. a. Compute the unit product cost.

 b. Prepare an income statement for the year.

 2 Assume that the company uses variable costing.

 a. Compute the unit product cost.

 b. Prepare an income statement for the year.

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