I. Write a paper of no more than 350 words after completing Exercise 19-17 in WileyPLUS in which you respond to the following questions:
• In this case, would it be better to use the variable or absorption costing method, and why?
• What are the benefits of the two methods?
• Which method would lead to the best decision when a competitor is submitting a lower bid for your product?
• 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.
(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.