Great Outdoze 8-30

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Great Outdoze, Inc. manufactures high-quality sleeping bags, which sell for $130 each. The variable costs of production are as follows:
Direct material ................................................................................................ $40 Direct labor ....................................................................................................... 22 Variable manufacturing overhead ................................................................... 16 Budgeted fixed overhead in 20x4 was $400,000 and budgeted production was 25,000 sleeping bags. The year’s actual production was 25,000 units, of which 22,000 were sold. Variable selling and administrative costs were $2 per unit sold; fixed selling and administrative costs were $60,000. Required:

1. Calculate the product cost per sleeping bag under ( a ) absorption costing and ( b ) variable costing.

(a) The cost under absorption costing is
Direct material40
Direct labor22
Variable manufacturing overhead16
Fixed manufacturing overhead16(400,000 fixed amount/25,000 production) Total absorption cost$94

(b) In variable costing, the fixed manufacturing overhead is expensed and is not a part of product cost. The unit cost is Direct material40
Direct labor22
Variable manufacturing overhead16
Total variable cost78

2. Prepare income statements for the year using ( a ) absorption costing and ( b ) variable costing.

(a) Income statement under absorption costing

|Absorption costing income statement | | | |Sales (22,000 units X $130) | |$2,860,000 | |Cost of goods sold: | | | |Beginning inventory |$ 0   | | |Add cost of goods manufactured (94X25,000) | 2,350,000 |...
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