Problem - Compute product cost and prepare an income statement under variable and absorption costing.

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.

Instructions -

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

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