Great Outdoze 8-30
Great Outdoze, Inc. manufactures high-quality sleeping bags, which sell for $130 each. The variable costs of production are as follows:
Direct material ................................................................................................ $40
Direct labor ....................................................................................................... 22
Variable manufacturing overhead ................................................................... 16
Budgeted fixed overhead in 20x4 was $400,000 and budgeted production was 25,000 sleeping bags. The year’s actual production was 25,000 units, of which 22,000 were sold. Variable selling and administrative costs were $2 per unit sold; fixed selling and administrative costs were $60,000.
Required:
1. Calculate the product cost per sleeping bag under ( a ) absorption costing and ( b ) variable costing.
(a) The cost under absorption costing is
Direct material 40
Direct labor 22
Variable manufacturing overhead 16
Fixed manufacturing overhead 16 (400,000 fixed amount/25,000 production)
Total absorption cost $94
(b) In variable costing, the fixed manufacturing overhead is expensed and is not a part of product cost. The unit cost is
Direct material 40
Direct labor 22
Variable manufacturing overhead 16
Total variable cost 78
2. Prepare income statements for the year using ( a ) absorption costing and ( b ) variable costing.
(a) Income statement under absorption costing
|Absorption costing income statement | | |
|Sales (22,000 units X $130) | |$2,860,000 |
|Cost of goods sold: | | |
|Beginning inventory |$ 0 | |
|Add cost of goods manufactured (94X25,000) | 2,350,000
Direct material ................................................................................................ $40
Direct labor ....................................................................................................... 22
Variable manufacturing overhead ................................................................... 16
Budgeted fixed overhead in 20x4 was $400,000 and budgeted production was 25,000 sleeping bags. The year’s actual production was 25,000 units, of which 22,000 were sold. Variable selling and administrative costs were $2 per unit sold; fixed selling and administrative costs were $60,000.
Required:
1. Calculate the product cost per sleeping bag under ( a ) absorption costing and ( b ) variable costing.
(a) The cost under absorption costing is
Direct material 40
Direct labor 22
Variable manufacturing overhead 16
Fixed manufacturing overhead 16 (400,000 fixed amount/25,000 production)
Total absorption cost $94
(b) In variable costing, the fixed manufacturing overhead is expensed and is not a part of product cost. The unit cost is
Direct material 40
Direct labor 22
Variable manufacturing overhead 16
Total variable cost 78
2. Prepare income statements for the year using ( a ) absorption costing and ( b ) variable costing.
(a) Income statement under absorption costing
|Absorption costing income statement | | |
|Sales (22,000 units X $130) | |$2,860,000 |
|Cost of goods sold: | | |
|Beginning inventory |$ 0 | |
|Add cost of goods manufactured (94X25,000) | 2,350,000