Cornerstones of Managerial Accounting 4th Edition by Maryanne Mowen, Don Hansen, Dan Heitger

Exercise 8

Variable Costing, Absorption Costing, Inventory Valuation
Zeitgeist Company manufactures silicon sleeves for MP3 players. In August 2011, Zeitgeist began producing the colorful sleeves. During the month of August, 16,000 were produced, and 14,750 were sold at $6.95 each. The following costs were incurred:
A selling commission of 8 percent of sales price was paid. Administrative expenses, all fixed, amounted to $37,890.
Required:
1. Calculate the unit cost and the cost of ending inventory under absorption costing. ( Note: Round unit cost to the nearest cent and cost of ending inventory to the nearest dollar.)
2. Calculate the unit cost and the cost of ending inventory under variable costing. ( Note: Round unit cost to the nearest cent and cost of ending inventory to the nearest dollar.)
3. What is the contribution margin per unit ( Note: Round to the nearest cent.)
4. Conceptual Connection: Zeitgeist believes that multicolored cubes will really take off after one year of sales. Management thinks August, 2012 sales will be twice as high as August, 2011 sales. Prepare an income statement for August, 2012 using the assumed higher level of sales. Which costing method should be used-absorption costing or variable costing