For the coming year, Archway C

For the coming year, Archway Computers Inc. expects to produceand sell 200,000 computers. Of these, 80,000 will be consumer(personal) computers and 120,000 will be small business computers.Common fixed overhead is $700,000. Additional information for thecoming year is as follows:

ConsumerComputers      Small BusinessComputers

Price                                                               $780                                       $2,300

Unit DirectMaterials                                    500                                         1,800

Unit DirectLabour                                        160                                            290

Unit VariableOverhead                                40                                              75

Unit Variable SellingExpenses                   75                                              70

Total Direct FixedOverhead               120,000                                    200,000


Fixed selling and administrative expense for Archway ComputersInc. is $3,460,000 per year.


Calculate the unit variable cost under variable costing. Is thiscost the same as unit variable product cost? Why or why not?

Prepare a segmented variable-costing income statement for nextyear. The segments correspond to product lines: consumer computersand small business computers.



Archway Computers

  1. Computation of unit variable cost under variable costingmethod:

Consumer Computers

Small Business Computers

Unit variable cost:

Direct material



Direct labot



variable overhead



Variable selling expenses



total unit variable cost



Unit Variable Product Cost

Consumer Computers

Small Business Computers

Unit variable product cost:

Direct material



Direct labot



variable overhead



Total unit variable product cost



Unit variable cost and unit variable product cost are different.The difference is due to the inclusion of variable selling expensesin the unit variable cost. The unit variable product cost comprisesthose costs that are incurred in the production such as directmaterial cost, direct labor cost and variable overhead. Sellingexpenses are not part of production cost.

Segmented Variable Costing Income Statement

Consumer Computers

Small Business Computers


Sales (units)




Sales (Dollars)




Variable costs




Contribution margin




Direct fixed overhead




Segment Margin




Common Fixed Costs


Operating Income



  • Consumer Computers = 80,000 x $780 = $62,400,000
  • Business Computers = 120,000 x 2,300 = $276,000,000

Variable cost

  • Consumer Computers = 80,000 x $775 = $62,000,000
  • Business Computers = 120,000 x 2,235 = $268,200,000

Contribution margin = sales – variable cost

Segment margin = contribution margin – direct fixed overhead

Operating income = total segment margin – common fixed costs

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