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Chapter 21: Q-21-11RQ (page 1167)

Why is it appropriate to use variable costing when planning production in the short term?

Short Answer

Expert verified

Answer

Because fixed cost is irrelevant in short run.

Step by step solution

01

Variable costing

Variable costing is based on variable costs and does consider fixed costs in decision-making.

02

Use of variable cost in production planning

It is appropriate to use variable costing when planning production in the short term because the fixed cost is an irrelevant cost as it has been already incurred and not get affected by future decisions.

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Most popular questions from this chapter

When should a company use absorption costing when setting sales prices? When should it use variable costing?

When units produced are less than units sold, how does operating income differ between variable costing and absorption costing? Why

Hayden Company has 50 units in Finished Goods Inventory at the beginning of the accounting period. During the accounting period, Hayden produced 150 units and sold 200 units for \(150 each. All units incurred \)80 in variable manufacturing costs and \(20 in fixed manufacturing costs. Hayden also incurred \)7,500 in Selling and Administrative Costs, all fixed. Calculate the operating income for the year using absorption costing and variable costing.

Question: Computing variable costing operating income Refer to the information for Concord, Inc.

Requirements:

  1. Using variable costing, calculate the unit product cost.
  2. Prepare an income statement using the contribution margin format.

Use the following information for Exercises E21-14 and E21-15.

Concord, Inc. has collected the following data for November (there are no beginning inventories):

Units produced and sold 500 units Sales price $ 450 per unit Direct materials 64 per unit Direct labor 68 per unit Variable manufacturing overhead 26 per unit Fixed manufacturing overhead 7,500 per month Variable selling and administrative costs 15 per unit Fixed selling and administrative costs 4,400 per month

Pierce Company had the following costs:

Units produced

500 units Manufacturing costs:

Direct materials

$ 25 per unit Direct labor

45 per unit Variable manufacturing overhead

15 per unit Fixed manufacturing overhead

5,000 per year Selling and administrative costs:

Variable selling and administrative costs

30 per unit Fixed selling and administrative costs

3,200 per year

Calculate the unit product cost using absorption costing and variable costing
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