T3-5 Variable versus absorption costing (LO 1, 2) Sarah Stoner sells handmade jewelry that she designs herself. The items aren't expensive, and she has a loyal following in her town and the surrounding area. Sarah incurred the following unit costs to produce 60,000 items. Direct materials $3.00 Direct labor $ 1.75 Variable overhead $0.75 Fixed overhead $4.25 Sarah began the year with no inventory. During the year she sold 45,000 items for $15 each, incurring $0.50 in selling costs per item plus $5,000 in advertising and other selling expenses. Questions a.Under variable costing, what is Sarah's operating income? b.Under absorption costing, what is Sarah's ending Finished Goods Inventory balance?

T3-5 Variable versus absorption costing (LO 1, 2) Sarah Stoner sells handmade jewelry that she designs herself. The items aren't expensive, and she has a loyal following in her town and the surrounding area. Sarah incurred the following unit costs to produce 60,000 items. Direct materials $3.00 Direct labor $ 1.75 Variable overhead $0.75 Fixed overhead $4.25 Sarah began the year with no inventory. During the year she sold 45,000 items for $15 each, incurring $0.50 in selling costs per item plus $5,000 in advertising and other selling expenses. Questions a.Under variable costing, what is Sarah's operating income? b.Under absorption costing, what is Sarah's ending Finished Goods Inventory balance?

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter2: Basic Managerial Accounting Concepts

Section: Chapter Questions

Problem 54P: Preparation of Income Statement: Manufacturing Firm Laworld Inc. manufactures small camping tents....

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T3-2 Variable costing versus absorption costing (LO 1, 2) Fiendish Friends makes Halloween costumes. The company incurred the following total costs to produce 25,000 costumes. Direct materials $200,000 Direct labor 150,000 Variable overhead 50,000 Fixed overhead 100,000 Questions a.Under the absorption costing method, what is the average unit product cost? Using this method, how much product cost would be recorded on the income statement if 20,000 units were sold? b.Under the variable costing method, what is the average unit product cost? Using this method, how much product cost would be recorded on the income statement if 20,000 units were sold?
Mandy Co. adopted a standard cost system several years ago. The standard costs for theprime costs of its single product follow: Material: 10 kg @ P4.50/kg P45.00Labor: 6 hours @ P8.50/hr P51.00 The following operating data were taken from the records for November:Units completed 5,800 unitsBudgeted output 6,000 unitsMaterials purchased 60,000 kgTotal actual labor costs P306,600Actual hours of labor 36,500 hoursMaterial usage variance P2,250 unfavorableTotal material variance P450 unfavorable Required: Compute for the following:1. actual material used 3. Labor rate variance2. actual cost paid per kilogram 4. Labor efficiency variance
Jones Company incurred the following costs while producing 100 chairs: Units produced 100 chairs Direct materials $10 per unit Direct labor 15 per unit Variable manufacturing overhead 3 per unit Total fixed manufacturing overhead 2,000 Variable selling and administrative 4 per unit Fixed selling and administrative 3,000 What is operating income using absorption costing if 80 units were sold for $150 each? ANSWER $9,760 $6,440 $8,160 $4,840 I DON'T KNOW YET
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Kuchen Manufacturing uses backflush costing to account for an electronic meter it makes. During August 2008, the firm produced 16,000 meters of which it sold 15,800. The standard cost for each meter is: Direct material P 20 Conversion costs 44 Total P 64 Assume that the company had no inventory on August 1. The following event took place in August: Purchased P320,000 of direct materials. Incurred P708,000 of conversion costs. Applied P704,000 of conversion costs to Raw and In Process Inventory. Finished 16,000 meters. Sold 15,800 meters for P100 each. Amount of Cost of Goods Sold after the adjustment of over-under applied conversion cost:
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