Chapter 19: Q2DQ (page 867)
What costs are normally included in product costs under absorption costing?
Direct materials, direct labor, and variable and fixed overhead costs are included in the product cost under absorption costing.
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A manufacturer reports the following information on its product. Compute the target selling price per unit under absorption costing.
Direct materials cost | \(50 per unit |
Direct labor cost | \)12 per unit |
Variable overhead cost | \(6 per unit |
Fixed overhead cost | \)2 per unit |
Target markup | 40% |
Under absorption costing a company had the following per unit costs when 10,000 units were produced.
Direct labor | \(2 |
Direct material | 3 |
Variable overhead | 4 |
Total variable cost | 9 |
Fixed overhead (\)50,000/10,000 units) | 5 |
Total product cost per unit | $14 |
1. Compute the company’s total product cost per unit if 12,500 units had been produced.
2. Why might a manager of a company using absorption costing produce more units than can currently be sold?
Refer to the information in Exercise 19-1. Assume instead that Trio Company uses variable costing.
1. Compute the product cost per unit using variable costing.
2. Determine the cost of ending finished goods inventory using variable costing.
3. Determine the cost of goods sold using variable costing.
E-Com had net income of \(130,000 under variable costing. Beginning and ending inventories were 1,200 units and 4,900 units, respectively. Fixed overhead cost was \)2.50 per unit for both the beginning and ending inventory. What is net income under absorption costing?
Question: Kenzi Kayaking, a manufacturer of kayaks, began operations this year. During this first year, the company produced 1,050 kayaks and sold 800 at a price of \(1,050 each. At this first year-end, the company reported the following income statement information using absorption costing.
Sales (800 × \)1,050) | \(840,000 |
Cost of goods sold (800 × \)500) | 400,000 |
Gross margin | 440,000 |
Selling and administrative expenses | 230,000 |
Net income | 210,000 |
Additional Information
a. Product cost per kayak totals \(500, which consists of \)400 in variable production cost and \(100 in fixed production cost—the latter amount is based on \)105,000 of fixed production costs allocated to the 1,050 kayaks produced.
b. The \(230,000 in selling and administrative expense consists of \)75,000 that is variable and $155,000 that is fixed.
1. Prepare an income statement for the current year under variable costing.
2. Explain the difference in income between the variable costing and absorption costing income statement.
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