Chapter 21: Q-21-5RQ (page 1166)
When units produced exceed units sold, how does operating income differ between variable costing and absorption costing? Why?
Answer
Operating income under absorption costing is higher compared to variable costing because some fixed costs remain in ending inventory unexpended.
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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?
: Analyzing profitability Refer to Exercise E21-22. Assume the sales mix shifted to 50% for each product. Calculate the total amount each product contributed to the coverage of fixed costs and the total contribution margin for the company.
Question: 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.
Using Excel for variable costing
Download an Excel template for this problem online in MyAccountingLab or athttp://www.pearsonhighered.com/Horngren. Tiger Mountain Gelato incurs thefollowing costs for its premium ice cream in May 2018:
Direct materials cost per pint $ 2.50 perpint
Direct labor cost per pint 0.75 per pint
Variable manufacturing overhead cost per pint 0.25 per pint
Fixed manufacturing overhead costs 6,000 per month
Total fixed selling and administrative costs 5,000 per month
Sales price per pint 8.00 per pint
Pints of gelato produced 12,000 pints
Pints of gelato sold 11,500 pints
There were no beginning inventories, so Tiger Mountain Gelato has 500 pintsin ending Finished Goods Inventory (12,000 pints produced less 11,500 pintssold).
Requirements
1. Calculate Tiger Mountain Gelato’s product cost per pint under absorptioncosting and variable costing.
2. Calculate the balance in Finished Goods Inventory on May 31, 2018, usingabsorption costing and variable costing.
3. Prepare income statements in good form for Tiger Mountain Gelato for May2018 using absorption costing and variable costing.
4. Reconcile the differences between operating incomes and Finished GoodsInventory balances between the two-costing method
Question: Computing absorption costing operating income
Refer to the information for Concord, Inc.
Requirements
Use the following information for Exercises E21-14 and E21-15.
Concord, Inc. has collected the following data for November (there are no beginning inventories):
Units produced and sold 500 units Sales price $ 450 per unit Direct materials 64 per unit Direct labor 68 per unit Variable manufacturing overhead 26 per unit Fixed manufacturing overhead 7,500 per month Variable selling and administrative costs 15 per unit Fixed selling and administrative costs 4,400 per month
How do service companies differ from manufacturing companies?
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