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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