Question

Dance Creations manufactures authentic Hawaiian hula skirts that are purchased for traditional Hawaiian celebrations, costume parties, and other functions. During its first year of business, the company incurred the following costs: Variable Cost per Hula Skirt Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative expenses $ 10.55 4.35 1.50 0.45 Fixed Cost per Month Fixed manufacturing overhead Fixed selling and administrative expenses $19,550 5,900 Dance Creations charges $35 for each skirt that it sells. During the first month of operation, it made 1,880 skirts and sold 1,740. Required: 1. Assuming Dance Creations uses variable costing, calculate the variable manufacturing cost per unit for last month. 2. Complete a variable costing income statement for the last month. 3. Assuming Dance Creations uses full absorption costing, calculate the full manufacturing cost per unit for the last month. 4. Complete a full absorption costing income statement 6. Suppose next month Dance Creations expects to produce 1,880 hula skirts and sell 1,980. Without recreating the new income statements, calculate the difference in profit between variable costing and full absorption costing. Which would be higher? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 6 Assuming Dance Creations uses variable costing, calculate the variable manufacturing cost per unit for last month. (Round your answer to 2 decimal places.) Total Variable Manufacturing Cost/Unit $ 16.40

Answer 1

Answer --> 1. Assuming Dance Creations uses variable costing, calculate the variable manufacturing cost per unit for last month Variable Manufacturing C unie Amount Direct materials Direct labor variable Manufacturing overhead $10.55 $4.35 $ 1.50 Variable Manufacturing cost per unit 1$ 16.40 So, The variable last month Manufacturing cost per unit for of Dance creations is $16.40 per unit.

2. complete a variable Costing Income Statement Variable costing Income statement Amount particulars Sales Revenue C1740 Skirts X $ 35 $60900 lesso Variable cost of goods sold obening Inventory Variable Manufacturing (1880 Skives $16,4)$30832 cost of good Manufactured Closing Inventory (140 Skirts x $ua. $12) $(28536) Gross contribution $32364 less, Variable Selling Administrative Expenses $1783) (1740 x $0.45) Net contribution margin $ 31581 lesso Fixed costs: Fixed Manufacturing overhead $ 19550) Fixed Seting and administrative expenses $(5900) Skirts 0. Net Income under variable Costing method $ 6131

3. Assuming Dance Creations uses full absorption costing, calculate the full Manufacturing.cost per unit for last month – Amount particulars Direct Materials Direct labor variable Manufacturing overhead Fixed Manufacturing overhead ($19550) 1980Skirts $10.55 $4.35 $1.50 $10.40 $26.80 Absorption Manufacturing cost per unit 50, The Full Absorption Manufacturing cost per unit for last month of Dance creations is $26.80. 4. Complete a full absorption costing Income statement : Full Absorption Income statement Amount particulars $60900 50984 Sales Revenue (1740 Skirts $35) lesso cost of goods sold: Opening Inventory Absorption cost of goods (1889X $26.80 $50384 manufactured Closing Inventory C140 X $26.80 $3752) Gross profit Skirts $646632 -Skirts $14268

lesso Selling & Administrative overhead: I Fixed Selling Administrative overhead Variable selling Administrative(1740x$0.45 overhead 0 sites $(5980) $1783) O Net Income under Absorption costing $7505

6. Suppose mext month Dance Creations expects to broduce 1880 hula skirts and Seul 1980. without recreating new Income Statements. Calculate the difference in profit between Variable costing and Absorption costing. Which would be higher? Skirts particulars Amount Difference in profit between variable costing & Absorption costing : closing stock overstated (40 x de X (26.8-16,4)) $416 in Absorption costing → opening Stock over stated [ 140 (26.8-16.47 $(1456) in Absorption costing [Skirts Difference in profit between Variable and Absorption costing

So, If difference in profit between Variable and Absorption . costing is $ (1040). Then, profit in Absorption costing - will be lower than variable costing profit by $1040. → Therefore, profit will be higher under variable costing.