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 ???$7.50
Direct labor ???$2.45
Variable manufacturing overhead ???$5.75
Variable selling and administrative expenses ???$3.90

Fixed Costs per Year
Fixed manufacturing overhead $234,650
Fixed selling and administrative expenses $240,100

Polk Company sells the fishing lures for $25. During 2012, the company sold 80,000 lures and produced 95,000 lures.

(a) Assuming the company uses variable costing, calculate Polk’s manufacturing cost per unit for 2012.

(b) Prepare a variable costingincome statement for 2012.

(c) Assuming the company uses absorption costing, calculate Polk’s manufacturing cost per unit for 2012.

(d) Prepare an absorption costing income

#1 In this case , would it be better to use the variable or absorption costing method, and why?

#2What 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?

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