Darwin Company manufactures only one product that it sells f

Darwin Company manufactures only one product that it sells for $200 per unit. The company uses plantwide overhead cost allocation based on the number of units produced. It provided the following estimates at the beginning of the year:

During the year, the company had no beginning inventories of any kind and no ending raw materials or work in process inventories. All raw materials were used in production as direct materials. An unexpected business downturn caused annual sales to drop to 38,000 units. In response to the decline in sales, Darwin decreased its annual production to 40,000 units. The company’s actual costs for the year were as follows:

Required:

1. Assuming the company uses normal costing (as described in Chapters 2 and 3):
a. Compute the plantwide predetermined overhead rate.
b. Compute the unit product cost for each unit produced during the year.
c. Prepare a schedule of cost of goods manufactured and a schedule of cost of goods sold. Assume that any underapplied or overapplied overhead is closed entirely to cost of goods sold.
d. Compute absorption costing net operating income for the year.

Prepare a schedule of cost of goods manufactured and a schedule of cost of goods sold. Assume that any underapplied or overapplied overhead is closed entirely to cost of goods sold.

Compute the plantwide predetermined overhead rate

Compute the unit product cost for each unit produced during the year.

Compute absorption costing net operating income for the year.

Number of units produced		50,000
Total fixed manufacturing overhead costs	$	1,000,000
Variable manufacturing overhead per unit produced	$	12

Solution

Req 1-a: Plantwide OH rate (per unit) Fixed OH rate (1000,000/50,000): 20 Variable OH rate 12.00 OH rate per unit 32.00 Req 1-b: Unit product cost: Material 78 Labour 60 Variable Manufacturing OH 12 Fixed Manufafcturing Oh 20 Unit product cost: 170 Req 1-c: Cost of Goods manufactured: Direct Material Beginning Inventory of Material 0 Add: Purchases 3120000 Total raw material available 3120000 Less: Ending material 0 Raw material consumed 3120000 Direct Labour 2400000 Manufacturing OH 1280000 Total Mnaufacturing Cost 6,800,000 Add: Beginning WIP 0 Total cost of Goods manufacturing 6800000 Less: Ending WIP 0 Cost of Goods manufactured: 6800000 Cost of Goods sold: Beginning Finished Goods 0 Add: Cost of Goods manufactured 6800000 Cost of Goods available for sale 6800000 Less: Ending inventory (2000 units @ 170) 340000 Cost of Goods sold: 6460000 Add; Under-applied OH 200,000 (1000,000 -40000 units @20) Adjusted Cost of Goods sold 6,660,000 Absorption costing: Unit product cost: Material 78 Labour 60 Variable Manufacturing OH 12 Fixed Manufafcturing Oh 25 (1000,000/40000) Unit product cost: 175 Net Income as per Aabsorption costing: Sales 7600000 Less: Cost fo Goods sold 6460000 Gross margin 1140000 Less: Selling and admin expense 920000 Net Income as per Aabsorption costing: 220000