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Chapter 21: Q-21-7RQ (page 1166)

Explain why the fixed manufacturing overhead cost per unit changes when there is a change in the number of units produced.

Short Answer

Expert verified

Answer

Fixed manufacturing overhead cost per unit changes with a change in the number of units because total fixed cost remains constant and fixed manufacturing overhead cost per unit has an inverse relation with the number of units.

Step by step solution

01

Fixed manufacturing overhead

Fixed manufacturing overheads are the sunk cost to the company which remains constant in total and do not show deviation in total with the change in production level.

02

Why does the fixed manufacturing overhead cost per unit change when there is a change in the number of units produced.

The fixed manufacturing overhead cost per unit changes with change in number of units produced because fixed manufacturing overhead remains constant in total and fixed manufacturing overhead cost per unit has an inverse relation with the number of units.

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Most popular questions from this chapter

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

Classifying costs Classify each cost by placing an X in the appropriate columns. The first cost is completed as an example.

Absorption Costing Variable Costing Product Cost Period Cost Product Cost Period cost

  1. Direct materials
  2. Direct labor
  3. Variable manufacturing overhead
  4. Fixed manufacturing overhead
  5. Variable selling and administrative costs
  6. Fixed selling and administrative cost

Computing variable costing contribution margin

Refer to your answers to Short Exercise S21-6. Product X sells for \(175 per unit. Assume no beginning inventories. Calculate the contribution margin using variable costing when Adamson:

  1. Produces and sells 2,000 units.
  2. Produces 2,500 units and sells 2,000 units
  3. Produces 5,000 units and sells 2,000 units.

S21-6 Direct materials \) 41 per unit Direct labor 57 per unit Variable manufacturing overhead 7 per unit Fixed manufacturing overhead 20,000 per year

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?

Preparing variable and absorption costing income statements

Game Source manufactures video games that it sells for \(43 each. The company uses a fixed manufacturing overhead allocation rate of \)5 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 2,500 units 2,500 units Variable manufacturing cost per game \( 17 \) 17Sales commission cost per game 7 7Total fixed manufacturing overhead12,500 12,500

Total fixed selling and administrative costs 11,500 11,500 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.
See all solutions

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