132) Bowzer Industries began operations on January 1, 2006.  The company sells a single product for $10 per unit. During 2006, 60,000 units were produced and 50,000 units were sold. There was no work in process inventory at December 31, 2006.

Bowzer uses an actual cost system for product costing and actual costs for 1998 were as follows:

FIXED COSTSVARIABLE COSTS

Direct materials- 0 -$2.00 per unit produced

Direct labour- 0 -$1.00 per unit produced

Manufacturing overhead$60,000$0.50 per unit produced

Selling and administrative

expense$40,000$0.80 per unit sold

a. What is the product cost per unit under:

(i)variable costing

(ii)absorption costing

b. What is the finished goods inventory cost at December 31, 2006 under:

(i)variable costing

(ii)absorption costing

c. Prepare income statements for 2006 under:

(i)variable costing

(ii)absorption costing

d. Reconcile the difference between variable costing income and absorption costing income.



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