Sivan Co. manufactures and sells one product. For the year, they started with no opening inventory; produced 100,000 units, but only sold 70,000 units. The selling price per each unit is $70. The variable costs per unit were: Direct materials.........................7 Direct Labor .............................6 Variable manufacturing overhead....5 Variable selling and administrative Solution a) Variable costing Sales (70000 units X $ 70) = 4900,000 Less: Variable cost of goods sold [opening inventory nil Variable cost of goods produced (100000 X 18) = 1800,000 less closing inventory (30000 units X 18) = 540000] 1260,000 Gross profit (4900,000-1260000) =36,40,000 Less: Selling and administrative overhead Variable selling and administrative overhead ( 70000 X 6) 420000 Less : Period cost Fixed manufacturing overhead 700000 Fixed selling and administrative overhead 300000 Net income =2220,000 note: 1.total variable cost = diect material+direct labor+variable maufacturing overhead = 7+6+5 = 18 2. closing inventory = 100000-70000 = 30000 b) Absorbtion costing Sales (70000 units X $ 70) = 4900,000 Less: Variable cost of goods sold [opening inventory nil Variable cost of goods produced  (100000 X 25) = 2500,000 less closing inventory (30000 units X 25) = 750,000] 17 50,000 Gross profit (4900,000 - 1750000) = 3150,000 Less: Selling and administrative overhead Variable selling and administrative overhead ( 70000 X 6) 420000 Fixed selling and administrative overhead 300000 Net income = 1030,000 note: 1. Manufacturing cost per unit total variable cost = diect material+direct labor+variable maufacturing overhead = 7+6+5 = 18 Fixed (700000/100000) = 7 25 .

1. Sivan Co. manufactures and sells one product. For the year, they started with no opening
inventory; produced 100,000 units, but only sold 70,000 units. The selling price per each unit is
$70. The variable costs per unit were:
Direct materials.........................7
Direct Labor .............................6
Variable manufacturing overhead....5
Variable selling and administrative
Solution
a) Variable costing
Sales (70000 units X $ 70) = 4900,000
Less: Variable cost of goods sold
[opening inventory nil
Variable cost of goods produced (100000 X 18) = 1800,000
less closing inventory (30000 units X 18) = 540000] 1260,000
Gross profit (4900,000-1260000) =36,40,000
Less: Selling and administrative overhead
Variable selling and administrative overhead ( 70000 X 6) 420000
Less : Period cost
Fixed manufacturing overhead 700000

2. Fixed selling and administrative overhead 300000
Net income =2220,000
note:
1.total variable cost = diect material+direct labor+variable maufacturing overhead
= 7+6+5 = 18
2. closing inventory = 100000-70000 = 30000
b) Absorbtion costing
Sales (70000 units X $ 70) = 4900,000
Less: Variable cost of goods sold
[opening inventory nil
Variable cost of goods produced  (100000 X 25) = 2500,000
less closing inventory (30000 units X 25) = 750,000] 17 50,000
Gross profit (4900,000 - 1750000) = 3150,000
Less: Selling and administrative overhead
Variable selling and administrative overhead ( 70000 X 6) 420000
Fixed selling and administrative overhead 300000
Net income = 1030,000
note:
1. Manufacturing cost per unit
total variable cost = diect material+direct labor+variable maufacturing overhead
= 7+6+5 = 18
Fixed (700000/100000) = 7
25