Reference no: EM133173301
Question - Morey Company has just completed its first year of operations. It produced 50,000 units and sold 40,000 units. The company's absorption costing income statement for the year appears below:
Morey Company Income Statement
Sales $1,350,000
Cost of goods sold 840,000
Gross margin 510,000
Selling and administrative expenses 420,000
Net operating profit $90,000
The company's selling and Administration expenses consist of $300,000 per year in fixed expenses and $3 per unit sold in variable expenses. Also the estimated and actual Fixed manufacturing overhead is $250,000.
Required -
1. Calculate the cost per unit under absorption costing.
2. Calculate the cost per unit under variable costing.
3. Prepare the company's income statement using variable costing.
4. Reconcile any difference between the net operating profit on your variable costing income statement and the net operating profit on the absorption costing income statement. (DO NOT use the short-cut method).
5. Discuss the possible effects when the estimated and actual fixed manufacturing overhead amounts are not the same.
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