Question

Great Outdoze, Inc., manufactures high-quality sleeping bags, which sell for $66.00 each. The variable costs of production are as follows: Direct material Direct labor Variable manufacturing overhead $19.50 9.90 7.60 Budgeted fixed overhead in 20x4 was $149,600 and budgeted production was 22,000 sleeping bags. The year's actual production was 22,000 units, of which 18,700 were sold. Variable selling and administrative costs were $1.30 per unit sold; fixed selling and administrative costs were $26,000. Required: 1. Calculate the product cost per sleeping bag under (a) absorption costing and (b) variable costing. (Do not round intermediate calculations and round your final answers to 2 decimal places.) Product Cost per unit Absorption costing Variable costing

Answer 1

1 Unit Product cost under Absorption Costing Direct Material Direct Labor Variable Manufacturing Overhead Fixed Manufacturing Overhead Unit Product cost Absorption Costing $ 19.50 $ 9.90 $ 7.60 $ 6.80 $ 43.80 $ $ $ $ $ Variable Costing 19.50 9.90 7.60 - 37.00 Fixed Manufacturing Overhead Per unit = Total Fixed Manufacturing Overhead/Total units Produced = 149600/22000 = $6.80 a. Absorption costig Income Statement $ 1,234,200 18700 x 66 819,060 18700 x 43.8 415,140 810 $ Less Sales Cost of Goods Sold Gross Margin Selling & Administrative expense: variable Selling & administrative expense fixed Selling & administrative expense Total Selling & administrative expense Net Operating Income $ 24,310 18700 x 1.30 26,000 50,310 364,830 $ b. Variable costing Income Statement $ 1,234,200 less $ $ Sales Variable Expenses: cost of goods sold variable Selling & administrative expense Total Variable Expense Contribution Margin Fixed Expense: Fixed Manufacturing cost Fixed Selling & administrative expense Total Fixed Cost Net Operating Income 691,900 24,310 716,210 517,990 $ less 149,600 26,000 175,600 342,390 $ Change in inventory Predetermined rate absorption - variable 3300 6.8 22440 Change in inventory = 22000 -18700 =3300 Predetermined rate = 149600/22000 = 6.8