Problem 1: Butler Corporation prepared a budget last period that called for sales of 30,000 units at a price of $20 each. The costs per unit were estimated to amount to $9 variable and $5 fixed. During the period, production was equal to actual sales of 25,000 units. The selling price was $22.00 per unit. Variable costs were $9.50 per unit. Fixed costs actually incurred were $160,000.
Required:
1. Make a report to show the difference between the actual contribution margin per the static budget and the budgeted contribution margin per the flexible budget.
2. Explain the significance of the comparisons.
Problem 2: Herro Corporation began operations in July and manufactured 40,000 units during the month with the following unit costs:
Direct materials $7.00
Direct labor 4.00
Variable overhead 3.00
Variable marketing cost 3.00
Total fixed factory overhead is $400,000 per month. During July, 35,000 units were sold at a price of $40, and fixed marketing and administrative expenses were $150,000.
Required:
1. Calculate the unit product cost of each unit using absorption costing and variable costing.
2. Variable costing income statement for Herro Corporation for the month of July.
3. Explain how variable costing differs from absorption costing.
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