Absorption and Variable Costing with Over- and Underapplied Overhead Flaherty, Inc., has just completed its first year of operations. The unit costs on a normal costing basis are as follows: Manufacturing costs (per unit): Direct materials (2 lbs. @ 1.20) $2.40 Direct labor (0.4 hr. @ 15.00) 6.00 Variable overhead (0.4 hr. @ 4.00) 1.60 Fixed overhead (0.4 hr. @ 6.00) 2.40 Total $12.40 Selling and administrative costs: Variable $1.60 per unit Fixed $221,000 During the year, the company had the following activity: Units produced 26,000 Units sold 23,400 Unit selling price $35 Direct labor hours worked 10,400 Actual fixed overhead was $11,600 less than budgeted fixed overhead. Budgeted variable overhead was $4,200 less than the actual variable overhead. The company used an expected actual activity level of 10,400 direct labor hours to compute the predetermined overhead rates. Any overhead variances are closed to Cost of Goods Sold. Required: Question Content Area 1. Compute the unit cost using (a) absorption costing and (b) variable costing. Unit Cost Absorption costing $fill in the blank d62aaff35071013_1 Variable costing $fill in the blank d62aaff35071013_2 Question Content Area 2. Prepare an absorption-costing income statement. Round your answers to the nearest cent. Flaherty, Inc.Absorption-Costing Income StatementFor the First Year of Operations $- Select - $- Select - Less: - Select - - Select - Gross profit $fill in the blank e423c7fd0fbcfda_8 - Select - Operating income $fill in the blank e423c7fd0fbcfda_11 Question Content Area 3. Prepare a variable-costing income statement. Round your answers to the nearest cent. Flaherty, Inc.Variable-Costing Income StatementFor the First Year of Operations $- Select - $- Select - Add: - Select - - Select - - Select - Contribution margin $fill in the blank add2d5ffb051ff2_10 Less: $- Select - - Select - $- Select - Operating income $fill in the blank add2d5ffb051ff2_16 Question Content Area 4. Reconcile the difference between the two income statements. The absorption costing generates an income $fill in the blank 1577a3028fcefd8_1 than variable costing.

Absorption and Variable Costing with Over- and Underapplied Overhead Flaherty, Inc., has just completed its first year of operations. The unit costs on a normal costing basis are as follows: Manufacturing costs (per unit): Direct materials (2 lbs. @ 1.20) $2.40 Direct labor (0.4 hr. @ 15.00) 6.00 Variable overhead (0.4 hr. @ 4.00) 1.60 Fixed overhead (0.4 hr. @ 6.00) 2.40 Total $12.40 Selling and administrative costs: Variable $1.60 per unit Fixed $221,000 During the year, the company had the following activity: Units produced 26,000 Units sold 23,400 Unit selling price $35 Direct labor hours worked 10,400 Actual fixed overhead was $11,600 less than budgeted fixed overhead. Budgeted variable overhead was $4,200 less than the actual variable overhead. The company used an expected actual activity level of 10,400 direct labor hours to compute the predetermined overhead rates. Any overhead variances are closed to Cost of Goods Sold. Required: Question Content Area 1. Compute the unit cost using (a) absorption costing and (b) variable costing. Unit Cost Absorption costing $fill in the blank d62aaff35071013_1 Variable costing $fill in the blank d62aaff35071013_2 Question Content Area 2. Prepare an absorption-costing income statement. Round your answers to the nearest cent. Flaherty, Inc.Absorption-Costing Income StatementFor the First Year of Operations $- Select - $- Select - Less: - Select - - Select - Gross profit $fill in the blank e423c7fd0fbcfda_8 - Select - Operating income $fill in the blank e423c7fd0fbcfda_11 Question Content Area 3. Prepare a variable-costing income statement. Round your answers to the nearest cent. Flaherty, Inc.Variable-Costing Income StatementFor the First Year of Operations $- Select - $- Select - Add: - Select - - Select - - Select - Contribution margin $fill in the blank add2d5ffb051ff2_10 Less: $- Select - - Select - $- Select - Operating income $fill in the blank add2d5ffb051ff2_16 Question Content Area 4. Reconcile the difference between the two income statements. The absorption costing generates an income $fill in the blank 1577a3028fcefd8_1 than variable costing.

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter18: Pricing And Profitability Analysis

Section: Chapter Questions

Problem 15E: Flaherty, Inc., has just completed its first year of operations. The unit costs on a normal costing...

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Question Content Area

1. Compute the unit cost using (a) absorption costing and (b) variable costing.

	Unit Cost
Absorption costing	$fill in the blank d62aaff35071013_1
Variable costing	$fill in the blank d62aaff35071013_2

Question Content Area

2. Prepare an absorption-costing income statement. Round your answers to the nearest cent.

Flaherty, Inc.Absorption-Costing Income StatementFor the First Year of Operations

		$- Select -
	$- Select -
Less:
	- Select -	- Select -
Gross profit		$fill in the blank e423c7fd0fbcfda_8
		- Select -
Operating income		$fill in the blank e423c7fd0fbcfda_11

Question Content Area

3. Prepare a variable-costing income statement. Round your answers to the nearest cent.

Flaherty, Inc.Variable-Costing Income StatementFor the First Year of Operations

		$- Select -
	$- Select -
Add:
	- Select -	- Select -
		- Select -
Contribution margin		$fill in the blank add2d5ffb051ff2_10
Less:
	$- Select -
	- Select -	$- Select -
Operating income		$fill in the blank add2d5ffb051ff2_16

Question Content Area

4. Reconcile the difference between the two income statements.
The absorption costing generates an income $fill in the blank 1577a3028fcefd8_1

than variable costing.

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Manufacturing costs (per unit):
Direct materials (2 lbs. @ 1.20)	$2.40
Direct labor (0.4 hr. @ 15.00)	6.00
Variable overhead (0.4 hr. @ 4.00)	1.60
Fixed overhead (0.4 hr. @ 6.00)	2.40
Total	$12.40
Selling and administrative costs:
Variable	$1.60	per unit
Fixed	$221,000

Units produced	26,000
Units sold	23,400
Unit selling price	$35
Direct labor hours worked	10,400