Aaron Corporation, which has only one product, has provided the following data concerning its most recent month of operations:
Selling price $90
Units in beginning inventory 0
Units produced 3,400
Units sold 3,000
Units in ending inventory 400
Variable costs per unit:
Direct materials $21
Direct labor $38
Variable manufacturing overhead $6
Variable selling and administrative
expense $4
Fixed costs:
Fixed manufacturing overhead $54,400
Fixed selling and administrative
expense $3,000
1. What is the unit product cost for the month under variable costing?
a. $69 per unit.
b. $65 per unit.
c. $85 per unit.
d. $81 per unit.
2. What is the unit product cost for the month under absorption costing?
a. $81 per unit.
b. $65 per unit.
c. $85 per unit.
d. $69 per unit.
3. The total contribution margin for the month under variable costing is:_.
a. $27,000.
b. $63,000.
c. $8,600.
d. $75,000.
4. The total gross margin for the month under the absorption costing approach is:.
a. $12,000.
b. $59,400.
c. $63,000.
d. $27,000.
5. What is the net operating income for the month under variable costing?
a. $12,000.
b. $(20,400).
c. $5,600.
d. $6,400.
6. What is the net operating income for the month under absorption costing?
a. $6,400.
b. $12,000.
c. $5,600.
d. $(20,400).

The absorption costing method includes all costs related to production, both fixed and variable. The unit product cost is calculated using direct material, direct labor, and total unitary manufacturing overhead.

The variable costing method incorporates all variable production costs (direct material, direct labor, and variable overhead).

1)

Unit product cost= direct material + direct labor + variable overhead

Unit product cost= 21 + 38 + 6= $65

2)

Unit product cost= direct material + direct labor + total unitary overhead

Unit product cost= 65 + (54,400/3,400)= $81

3)

Total contribution margin= unitary contribution margin*units sold

Total contribution margin= (90 - 65 - 4)*3,000

Total contribution margin= $63,000

4)

Gross margin= sales - cost of goods sold

Gross margin= 270,000 - (3,000*81)

Gross margin= $27,000

5) Income statement: (variable)

Total contribution margin= 63,000

Fixed manufacturing overhead= (54,400)

Fixed selling and administrative expense= (3,000)

Net operating income= 5,600

6) Income statement: (absorption)

Gross profit= 27,000

Total selling and administrative expense= (3,000 + 3,000*4)= (15,000)

Net operating income= 12,000