Answered: (Variable and absorption costing) Porta…

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

Chapter3: Cost Behavior And Cost Forecasting

Section: Chapter Questions

Problem 66P: Variable-Costing and Absorption-Costing Income Borques Company produces and sells wooden pallets...

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LO.6 & LO.7 (Variable and absorption costing) Porta Light manufactures a high quality LED lashlight for home/office use. Data pertaining to the company's operations are as follows:

Production for the year	45,000 units
Sales for the year (sales price per unit, $8)	48,750 units
Beginning 2013 inventory	8,750 units

Costs to produce one unit (2012 & 2013):
Direct material	$3.60
Direct labor	1.00
Variable overhead	0.60
Fixed overhead	0.40
Selling and administrative costs:
Variable (per unit sold)	$0.40
Fixed (per year)	$150,000

The FOH rate is based on units of production based on an expected production capacity of 100,000 units per year.

a. What is budgeted annual fixed manufacturing overhead?
b. If budgeted fixed overhead equals actual fixed overhead, what is underapplied or overapplied fixed overhead in 2013 under absorption costing? Under variable costing?
c. What is the product cost per unit under absorption costing? Under variable costing?

d. How much total expense is charged against revenues in 2013 under absorption costing? Under variable costing?
c. Is income higher under absorption or variable costing? By what amount?

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