Question

Comfort Corporation manufactures and sells various types of chairs. The below are the costing details of a chair model, namely, Curver:

• Variable manufacturing cost per unit = $60
• Total fixed manufacturing cost for the year = $1,500,000
• Variable selling and administrative expense per unit sold = $5
• Total fixed selling and administrative cost for the year = $230,000
• Predetermined overhead rate being computed based on the expected production of 100,000 units

The selling price for the chairs was $150 each.

1. If Comfort used the normal absorption costing method with all over/under-applied of fixed manufacturing costs directly written off to cost of goods sold, what would be the net operating income on the sale of Curver in its first year when 120,000 chairs being produced instead of the 100,000 expected production? Comfort managed to sell 100,000 chairs.
2. Based on your answer for Question 5, what would have been the difference in profit if the variable costing format was used instead? A complete variable income statement is not required.
3. If the company had used absorption costing and the actual costing system, what would have been Comfort's net operating income in its first year if 12,000 chairs had been produced instead of 10,000 and Comfort still sold 10,000 chairs?
4. Using variable costing method only, compare the net operating income difference if the company only sold 90,000 chairs instead of 100,000 chairs?

Answer 1