The Dorset Corporation produces and sells a single product. The following data refer to the year just completed:
Assume that direct labor is a variable cost.
Required:
a. Compute the unit product cost under both the absorption costing and variable costing approaches.
b. Prepare an income statement for the year using absorption costing.
c. Prepare an income statement for the year using variable costing.
d. Reconcile the absorption costing and variable costing net operating income figures in (b) and (c) above.
Definitions:
Units-Of-Output Depreciation
A depreciation method that allocates an asset's cost based on its usage or production levels, rather than simply the passage of time.
Depreciable Cost
The total cost of a tangible asset that is subject to depreciation, excluding salvage value, to allocate over the asset's useful life.
Depreciation Rate
The percentage rate at which an asset is depreciated across its useful life, affecting the value of the asset on the balance sheet over time.
Straight-Line Method
A method of calculating depreciation by dividing the cost of an asset, minus its salvage value, by its useful life.
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