Accounting Assignment: Variable vs. marginal costing

Accounting Assignment: Variable vs. marginal costing
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Manufacturing cost per unit in variable costing
Variable CostingVariable costs per unit Direct Materials7.73Direct labor2.52Variable manufacturing overhead5.92Fixed costs per yearFixed manufacturing overhead Cost per Unit16.17
The fixed manufacturing cost per unit is the total fixed manufacturing cost divided by the total number of lures produced.
Variable costing income statement
POLK COMPANY
Income Statement
For the Year Ended December 31, 2012
Variable Costing
Cost per unit QuantityTotal costSales25.7580,0002060000Variable cost of goods sold16.1780,0001293600Variable selling & Administrative4.0280,000321600 Contributing margin444800Fixed overhead239,522Fixed selling and administrative 247,303Income/ loss-42,025

Manufacturing cost per unit - absorption costing
Variable costs per unit absorption costingDirect Materials7.73Direct labor2.52Variable manufacturing overhead5.92Fixed costs per yearFixed manufacturing overhead2.54Cost per Unit18.71
Calculation of the fixed manufacturing cost under absorption costing is based on dividing the total manufacturing overhead expenses by the total lures production of 94,300. Thus, the fixed manufacturing overhead is 239,522/ 94,300= 2.54. The cost is borne during production and not during sales and hence should be based on 94,300 lures produced and not 80,000 lures sold. Both fixed and variable selling and administrative expenses are irrelevant in calculating the unit cots of producing lures.
Absorption costing income statement
POLK COMPANY
Income Statement
For the Year Ended December 31, 2012
Absorption Costing
Cost per unitQuantityTotal costSales25.7580,0002060000Variable cost of goods sold16.1780,0001293600Fixed overhead2.5480,000203200 Gross profit563200Variable selling and administrative4.0280,000321600Fixed selling and administrative 247,303Income/ loss -5,703
In this case, would it be better to use the variable or ab...