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Chapter 21: Q-21-15 (page 1169)
How do service companies differ from manufacturing companies?
Answer
Service companies do not produce any product.
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Question: Preparing variable and absorption costing income statements
Game Store manufactures video games that it sells for \(38 each. The company uses a fixed manufacturing overhead allocation rate of \)3 per game. Assume all costs and production levels are exactly as planned. The following data are from Game Store’s first two months in business during 2018:
October November
Sales 1,500 units 2,900 units
Production 2,800 units 2,800 units
Variable manufacturing cost per game \( 16 \) 16
Sales commission cost per game 8 8
Total fixed manufacturing overhead 8,400 8,400
Total fixed selling and administrative costs 8,000 8,000 Requirements
1. Compute the product cost per game produced under absorption costing and under variable costing.
2. Prepare monthly income statements for October and November, including columns for each month and a total column, using these costing methods:
a. absorption costing.
b. variable costing.
3. Is operating income higher under absorption costing or variable costing in October? In November? Explain the pattern of differences in operating income based on absorption costing versus variable costing.
4. Determine the balance in Finished Goods Inventory on October 31 and November 30 under absorption costing and variable costing. Compare the differences in inventory balances and the differences in operating income. Explain the differences in inventory balances based on absorption costing versus variable costing.
Question: Communication Activity 21-1
In 100 words or fewer, explain the main differences and similarities between variable costing and absorption costing.
Calculating gross profit and operating income, absorption costing Calculate the gross profit and operating income for June using absorption costing
Use the following information for Short Exercises S21-4 and S21-5.
Dracut Company reports the following information for June:
Net Sales Revenue $ 755,000 Variable Cost of Goods Sold 240,000 Fixed Cost of Goods Sold 198,000 Variable Selling and Administrative Costs 168,000 Fixed Selling and Administrative Costs 79,000
Question:What is a business segment? Give some examples.
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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