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Category > Management Posted 13 Oct 2017 My Price 8.00

Maxwell Company

EXERCISE 6–7 Variable and Absorption Costing Unit Product Costs and Income Statements [LO1, LO2]

Maxwell Company manufactures and sells a single product. The following costs were incurred

during the company’s first year of operations:

 

 

 

 

 

During the year, the company produced 20,000 units and sold 16,000 units. The selling price of the company’s product is $50 per unit.

 

Required:

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?

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Maurice Tutor
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Status NEW Posted 13 Oct 2017 01:10 PM My Price 8.00

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