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Chapter 21: Q-21-2RQ (page 1167)
What is variable costing?
Answer
Variable costing is the modern method of calculating product cost per unit.
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Setting sales prices The Sweet Treats Company manufactures candy that is sold to food distributors. The company produces at full capacity for six months each year to meet peak demand during the “candy season” from Halloween through Valentine’s Day. During the other six months of the year, the manufacturing facility operates at 75% of capacity. The Sweet Treats Company provides the following data for the year:
Cases of candy produced and sold 1,800,000 cases Sales price $ 37.00 per case Variable manufacturing costs 20.00 per case Fixed manufacturing costs 6,400,000 per year Variable selling and administrative costs 2.00 per case Fixed selling and administrative costs 3,500,000 per year The Sweet Treats Company receives an offer to produce 13,000 cases of candy for a special event. This is a one-time opportunity during a period when the company has excess capacity. What is the minimum sales price The Sweet Treats Company should accept for the order? Explain why
When should a company use absorption costing when setting sales prices? When should it use variable costing?
Preparing variable and absorption costing income statements
This problem continues the Piedmont Computer Problem situation from Chapter 20. Piedmont Computer Company manufactures personal computers and tablets. Based on the latest information from the cost accountant, using the current sales mix, the weighted-average sales price per unit is \(750 and the weighed-average variable cost per unit is \)450. The company does not expect the sales mix to vary for the next year. Assume the beginning balance in Finished Goods Inventory is \(0. Additional data for the first month of 2020:
January 2020
Unitsproduced and sold: Sales 945 units Production 1,000 units Variable manufacturing cost per unit \) 450 Sales commission cost per unit 25 Total fixed manufacturing overhead 93,600 Total fixed selling and administrative costs 62,400
Requirements
1. Compute the product cost per unit produced under absorption costing and under variable costing.
2. Prepare income statements for January 2020 using: a. absorption costing. b. variable costing.
3. Is operating income higher under absorption costing or variable costing in January? What causes the difference?
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
Computing absorption costing gross profit
Refer to your answers to Short Exercise S21-6. Product X sells for \(175 per unit. Assume no beginning inventories. Calculate the gross profit using absorption costing when Adamson:
S21-6 Direct materials \) 41 per unit Direct labor 57 per unit Variable manufacturing overhead 7 per unit Fixed manufacturing overhead 20,000 per ye
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