Variable and absorption costing, explaining operating-income differences. Crystal Clear Corporation manufactures and sells 50-inch television sets and uses standard costing. Actual data relating to January, February, and March 2017 are as follows: JanuaryFebruaryMarchUnit data Beginning entry0100100Production1,40013751430Sales1,30013751455Variable costs Manufacturing cost per unit produced$ 950 Operating (marketing) cost per unit sold$725 Fixed costs Manufacturing costs$490,000$490,000$490,000Operating (marketing) costs$120,000$120,000$120,000 The selling price per unit is $3,500. The budgeted level of production used to calculate the budgeted fixed manufacturing cost per unit is 1,400 units. There are no price-, efficiency-, or spending variances. Any production- volume variance is written off to cost of goods sold in the month in which it occurs. Prepare income statements for Crystal Clear in January, February, and March 2017 under (a) variable costing and (b) absorption costing.

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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

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Variable and absorption costing, explaining operating-income differences. Crystal Clear Corporation manufactures and sells 50-inch television sets and uses standard costing. Actual data relating to January, February, and March 2017 are as follows:

	January	February	March
Unit data
Beginning entry	0	100	100
Production	1,400	1375	1430
Sales	1,300	1375	1455
Variable costs
Manufacturing cost per unit produced	$ 950
Operating (marketing) cost per unit sold	$725
Fixed costs
Manufacturing costs	$490,000	$490,000	$490,000
Operating (marketing) costs	$120,000	$120,000	$120,000

The selling price per unit is $3,500. The budgeted level of production used to calculate the budgeted fixed manufacturing cost per unit is 1,400 units. There are no price-, efficiency-, or spending variances. Any production- volume variance is written off to cost of goods sold in the month in which it occurs.

Prepare income statements for Crystal Clear in January, February, and March 2017 under (a) variable costing and (b) absorption costing.

Definition Definition System of assigning an estimated cost to the product (instead of the actual cost) so that the product cost can be determined well in advance and the pricing of the product can be done on time. Since the actual cost cannot be predicted at the initial stage of the production process, the estimated cost is recorded in the books. Any deviation of the estimated cost of the actual cost is adjusted in the books at the end of the period.

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