Great Outdoze Company manufactures sleeping bags, which sell for $66.30 each. The variable costs of production are as follows: Direct material $ 19.20 Direct labor 10.50 Variable manufacturing overhead 8.10 Budgeted fixed overhead in 20x1 was $140,700 and budgeted production was 21,000 sleeping bags. The year’s actual production was 21,000 units, of which 17,700 were sold. Variable selling and administrative costs were $1.40 per unit sold; fixed selling and administrative costs were $29,000. Required: 1. Calculate the product cost per sleeping bag under (a) absorption costing and (b) variable costing. 2-a. Prepare an operating income statement for the year using absorption costing. 2-b. Prepare an operating income statement for the year using variable costing. 3. Reconcile reported operating income under the two methods using the shortcut method.
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Great Outdoze Company manufactures sleeping bags, which sell for $66.30 each. The variable costs of production are as follows:
| Direct material | $ | 19.20 | |
| Direct labor | 10.50 | ||
| Variable manufacturing overhead | 8.10 | ||
Budgeted fixed overhead in 20x1 was $140,700 and budgeted production was 21,000 sleeping bags. The year’s actual production was 21,000 units, of which 17,700 were sold. Variable selling and administrative costs were $1.40 per unit sold; fixed selling and administrative costs were $29,000.
Required:
1. Calculate the product cost per sleeping bag under (a) absorption costing and (b) variable costing.
2-a. Prepare an operating income statement for the year using absorption costing.
2-b. Prepare an operating income statement for the year using variable costing.
3. Reconcile reported operating income under the two methods using the shortcut method.
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