Chapter 21: Q-21-4RQ (page 1166)
When units produced equal units sold, how does operating income differ between variable costing and absorption costing?
Answer
No difference in operating income under variable costing and absorption costing.
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Analyzing profitability
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 | \(12,000 |
Variable cost per unit | 6,283 | 7,072 | 7,080 |
Prepare an income statement for Camden Company for 2018 using the contribution margin format assuming total fixed costs for the company were \)435,000. Include columns for each business segment and a column for the total company.
Preparing variable and absorption costing income statements
Claudia’s Foods produces frozen meals that it sells for \(11 each. The company computes a new monthly fixed manufacturing overhead allocation rate based on the planned number of meals to be produced that month. Assume all costs and production levels are exactly as planned. The following data are from Linda’s Foods’s first month in business:
January 2018 Units produced and sold: Sales 850 meals Production 1,050 meals Variable manufacturing cost per meal \) 5Sales commission cost per meal 1 Total fixed manufacturing overhead 315Total fixed selling and administrative costs 450 Requirements
1. Compute the product cost per meal produced under absorption costing and under variable costing.
2. Prepare income statements for January 2018 using: a. absorption costing. b. variable costing.
3. Is operating income higher under absorption costing or variable costing in January?
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?
Explain how increasing production can increase gross profit when using absorption costing.
Question: Preparing variable costing income statements, production exceeds sales
ReVitalAde produced 13,000 cases of powdered drink mix and sold 12,000 cases in April 2018. 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 overhead and $9,000 selling and administrative). The company had no beginning Finished Goods Inventory.
Requirements:
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