Question

For year ended December 31, 2006, firm a produced and sold 12,000 units of product. Fixed expenses associated with producing the product totaled $4000 for the year. A variable cost of $3.20 per unit was incurred to produce the product. Fixed expenses associated with selling the product totaled $ 2,700 for the year, while fixed costs associated with overall administration totaled $3,000 for the year. A variable cost of $0.40 per unit was incurred for product selling, while a variable cost of $0.30 per unit was associated with overall administration. A price of $6.25 per unit was realized on each unit of product sold.


a. using absorption costing as the basis, please present operating income for the year using the traditional income statement format.

b. now using variable costing as the basis, prepare an income statement for the year in the contribution margin format.

c. please determine the contribution margin per unit and the contribution margin ratio.