Accounting Assignment: Variable vs. marginal costing

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Costing Methods Paper

Complete Exercise 19-17 from the Wiley Plus software.

Exercise 19-17

Polk Company builds custom fishing lures for sporting goods stores. In its first year of operations, 2012, the company incurred the following costs.

Variable Cost per Unit

Direct materials $7.73

Direct labor $2.52

Variable manufacturing overhead $5.92

Variable selling and administrative expenses $4.02

Fixed Costs per Year

Fixed manufacturing overhead $239,522

Fixed selling and administrative expenses $247,303

Polk Company sells the fishing lures for $25.75. During 2012, the company sold 80,000 lures and produced 94,300 lures.

(a)  Assuming the company uses variable costing, calculate Polk’s manufacturing cost per unit for 2012. (Round answer to 2 decimal places, e.g.10.50.)

Manufacturing cost per unit $

(b)  Prepare a variable costing income statement for 2012.

POLK COMPANY

Income Statement

For the Year Ended December 31, 2012

Variable Costing

(c)  Assuming the company uses absorption costing, calculate Polk’s manufacturing cost per unit for 2012. (Round answer to 2 decimal places, e.g.10.50.)

Manufacturing cost per unit $

(d)  Prepare an absorption costing income statement for 2012.

POLK COMPANY

Income Statement

For the Year Ended December 31, 2012

Absorption Costing

After completing the assignment, write a paper of no more than 350 words in which you respond to the following questions:

• In this case, would it be better to use the variable or absorption costing method, and why?
• What are the benefits of the two methods?
• Which method would lead to the best decision when a competitor is submitting a lower bid for your product?

The paper does not have to be in APA format.