Reference no: EM13858072

Maxwell 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 $18
Direct labor $7
Variable manufacturing overhead $2
Variable selling and administrative $2
Fixed costs per year:
Fixed manufacturing overhead $200,000
Fixed selling and administrative expenses $110,000

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.

3. The company's controller believes that the company should have set last year's selling price at $51 instead of $50 per unit. She estimates the company could have sold 15,000 units at a price of $51 per unit, thereby increasing the company's gross margin by $2,000 and its net operating income by $4,000. Assuming the controller's estimates are accurate, do you think the price increase would have been a good idea?