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Exercise #4: Review of Learning Objectives 1-3: Variable and Absorption Costing. Wentzel Company manufactures...

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Accounting

Exercise #4: Review of Learning Objectives 1-3: Variable and Absorption Costing.
Wentzel Company manufactures and sells one product. The following information pertains to each of the company's first two years of operations:
Variable costs per unit:
Direct materials
Direct labor
Variable manufacturing overhead
Variable selling and administrative $10
$7
Fixed costs per year: ,$1
Fixed manufacturing overhead
Fixed selling and administrative
$525,000
During its first year of operations, Wentzel produced 75,000 units and sold 60,000 units. During its second year of operations, it produced 60,000 units and sold 75,000 units. The selling price of the company's product is $58 per unit.
Required:
Assume that the company uses variable costing:
a. Compute the unit product cost for Year 1 and Year 2.
b. Prepare an income statement for Year 1 and Year 2.
Assume that the company uses absorption costing:
a. Compute the unit product cost for Year 1 and Year 2.
b. Prepare an income statement for Year 1 and Year 2.
Explain the difference between variable costing and absorption costing net operating income in Year 1 and in Year 2.
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