Question

Assume that Smukers manufactures and sells 15,000 cases of jelly each year. The following data are available for the third quarter:

Total fixed manufacturing overhead..................$45,000

Fixed selling and administrative expenses.......10,000

Sales price per case.........................................32

Direct materials per case ................................12

Direct labor per case........................................ 6

Variable manufacturing overhead per case..... 3

REQUIRED:

1. Compare the cost per case under both absorption costing and variable costing.
2. Compute net income under both absorption costing and variable costing.
3. Reconcile any differences in income. Explain.

Answer 1

a.)

b.)

Net income under Absorption Costing and Variable Costing

C.) There is no difference in net income between Absorption Costing Method and Variable Costing Method, because all the units manufactured during the year got sold and there is no opening or closing inventory which leads to more profit under absorption costing as compare to Variable costing.