Grainger Company produces only one product and sells that product for $100per unit. Cost information for the product is as follows:Direct Material$14 per UnitDirect Labor$25 per UnitVariable Overhead$5 per UnitFixed Overhead$40,200Selling expenses are $3 per unit and are all variable. Administrative expensesof $18,000 are all fixed. Grainger produced 6,000 units; sold 4,800; and hadno beginning inventory.A. Compute net income underi. Absorption Costing $ii. Variable CostingB. Which costing method provide higher net income? By how much?Themethod provided more net income by $

Answered: A. Compute net income under i.…

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter6: Activity-based, Variable, And Absorption Costing

Section: Chapter Questions

Problem 13PA: Grainger Company produces only one product and sells that product for $100 per unit. Cost...

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Question

Grainger Company produces only one product and sells that product for $100
per unit. Cost information for the product is as follows:
Direct Material
$14 per Unit
Direct Labor
$25 per Unit
Variable Overhead
$5 per Unit
Fixed Overhead
$40,200
Selling expenses are $3 per unit and are all variable. Administrative expenses
of $18,000 are all fixed. Grainger produced 6,000 units; sold 4,800; and had
no beginning inventory.
A. Compute net income under
i. Absorption Costing $
ii. Variable Costing
B. Which costing method provide higher net income? By how much?
The
method provided more net income by $

Expert Solution

Step 1

The variable costing method and absorption costing are two methods of costing to find the cost of sales. Direct costs are those costs involved in the cost of goods sold, and indirect costs are those costs included in calculating the operating profit of a company. They are not directly associated with manufacturing. Variable costing takes only the variable costs associated with production, whereas absorption costing absorbs fixed costs into the cost of finished goods.