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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: Computing absorption costing operating income
Refer to the information for Concord, Inc.
Requirements
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
What is absorption costing?
Analyzing profitability Refer to Short Exercise S21-10. Which business segment provided the greatest total contribution margin? Which
business segment had the highest contribution margin ratio?
Camden Company has divided its business into segments based on sales territories: East Coast, Midland, and West Coast. Following are financial data for 2018:
East Coast | Midland | West Coast | |
Units sold | 71 | 69 | 53 |
Sales price per unit | \(10,300 | \)13,600 | $12,000 |
Variable cost per unit | 6,283 | 7,072 | 7,080 |
Preparing variable and absorption costing income statements
Claudia’s Foods produces frozen meals that it sells for \(11 each. The company computes a new monthly fixed manufacturing overhead allocation rate based on the planned number of meals to be produced that month. Assume all costs and production levels are exactly as planned. The following data are from Linda’s Foods’s first month in business:
January 2018 Units produced and sold: Sales 850 meals Production 1,050 meals Variable manufacturing cost per meal \) 5Sales commission cost per meal 1 Total fixed manufacturing overhead 315Total fixed selling and administrative costs 450 Requirements
1. Compute the product cost per meal produced under absorption costing and under variable costing.
2. Prepare income statements for January 2018 using: a. absorption costing. b. variable costing.
3. Is operating income higher under absorption costing or variable costing in January?
Using variable costing, service company Refer to Exercise E21-25. The commercial business segment provided services to 200 customers. The residential business segment provided services to 400 customers. Determine the average amount Sherman Company charged each type of customer for services, the average variable cost per customer, and the average contribution margin per customer, rounded to two decimal places. What caused the difference in contribution margin in the two segments?
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