January 2018 Units produced and sold: Sales 850 meals Production 1,050 meals Variable manufacturing cost per meal Sales commission cost per meal Total fixed manufacturing overhead 315 Total fixed selling and administrative costs 450

January 2018 Units produced and sold: Sales 850 meals Production 1,050 meals Variable manufacturing cost per meal Sales commission cost per meal Total fixed manufacturing overhead 315 Total fixed selling and administrative costs 450

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter20: Inventory Management: Economic Order Quantity, Jit, And The Theory Of Constraints

Section: Chapter Questions

Problem 8E: Melchar Company uses 78,125 pounds of oats each year. The cost of placing an order is 18, and the...

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Concept explainers

Pricing

Pricing is used as a term in finance and economics, pricing is the process of fixing a value for a product or a service. Pricing establishes a value for a product or service that the customer has to pay. A business can choose from different strategies while deciding to set prices.

Question

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 or meals to be produced that month. Assume all costs and production levels are exactly as planned. The following data are from Claudia’s Foods’s first month in business:

Requirements

Compute the product cost per meal produced under absorption costing and under variable costing.
Prepare income statements for January 2018 using:

absorption costing.
variable costing.

3. Is operating income higher under absorption costing or variable costing in January?

January 2018
Units produced and sold:
Sales
850 meals
Production
1,050 meals
Variable manufacturing cost per meal
Sales commission cost per meal
Total fixed manufacturing overhead
315
Total fixed selling and administrative costs
450

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