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Chapter 21: Q21-18E (page 1171)

Comparing variable and absorption costing Refer to Exercises E21-16 and E21-17.

Requirements:

  1. Which costing method produces the highest operating income? Explain why.
  2. Which costing method produces the highest April 30 balance in Finished Goods Inventory? Explain why

Short Answer

Expert verified

Answer

  1. Absorption method
  2. Absorption method

Step by step solution

01

Income statement using absorption costing

The absorption method produces the highest operating income because under the absorption method fixed manufacturing cost is charged only for the number of units sold.

02

Difference between April 30 balance as per absorption and variable costing

April 30 balance in Finished Goods Inventory under absorption method is higher than variable costing because absorption costing includes fixed manufacturing overhead in total unit product cost.

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Most popular questions from this chapter

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: Preparing variable costing income statements, production less than sales

Refer to your answers to Exercise E21-16. In May 2018, ReVitalAde produced 22,000 cases of powdered drink mix and sold 23,000 cases, of which 1,000 were produced in April. The sales price was \(29, variable costs were \)12 per case (\(9 manufacturing and \)3 selling and administrative), and total fixed costs were \(100,000 (\)91,000 manufacturing and $9,000 selling and administrative).

Requirements

  1. Prepare the May income statement using variable costing.
  2. Determine the balance in the Finished Goods Inventory as of May 31.

Computing unit product cost, variable costing Calculate the unit product cost using variable costing. Round your answer to the nearest cent.

Use the following information for Short Exercises S21-2 and S21-3.

Martin Company had the following costs:

Units produced 320 units Direct materials $ 71 per unit Direct labor 40 per unit Variable manufacturing overhead 13 per unit Fixed manufacturing overhead 7,360 per year Variable selling and administrative costs 22 per unit Fixed selling and administrative costs 1,920 per year

Analyzing profitability Sampler Company sells two products, Sigma and Zeta, with a sales mix of 70% and 30%, respectively. Sigma has a contribution margin per unit of \(26, and Zeta has a contribution margin per unit of \)21. The company sold 700 total units in September. Calculate the total amount each product contributed to the coverage of fixed costs and the total contribution margin for the company.

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
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