Silver Corporation produces a single product. Last year, the company's variable production costs totaled $7,500 and...

Silver Corporation produces a single product. Last year, the company's variable production costs totaled $7,500 and its fixed manufacturing overhead costs totaled $4,500. The company produced 3,000 units during the year and sold 2,400 units. There were no units in the beginning inventory. Which of the following statements is true?

		The net operating income under absorption costing for the year will be $900 lower than the net operating income under variable costing.
		Under absorption costing, the units in ending inventory will be costed at $2.50 each.
		The ending inventory under variable costing will be $900 lower than the ending inventory under absorption costing.
		Under variable costing, the units in the ending inventory will be costed at $4.00 each.

2.5 points

QUESTION 25

Lagle Corporation has provided the following information:

	Cost per Unit		Cost per Period
Direct materials	$	4.55
Direct labor	$	3.30
Variable manufacturing overhead	$	1.25
Fixed manufacturing overhead			$	11,000
Sales commissions	$	1.30
Variable administrative expense	$	0.35
Fixed selling and administrative expense			$	4200

For financial reporting purposes, the total amount of period costs incurred to sell 5000 units is closest to:

		$11,000
		$4200
		$12,450
		$8250

Solutions

Expert Solution

Answer to Question 1.
Total Expenses as per Variable Costing = $7,500 + $4,500
Total Expenses as per Variable Costing = $12,000

Fixed Manufacturing Overhead per Unit as per Absorption Costing=4,500/3,000 = $1.50
Fixed Manufacturing Overhead as per Absorption Costing = $1.50 * 2,400 = $3,600

Total Expenses as per Absorption Costing = $7,500 + $3,600
Total Expenses as per Absorption Costing = $11,100

Income under Absorption Costing will be $900 more than the Variable Costing.

Therefore, the ending Inventory under Variable Costing will be $900 lower than the ending Inventory under Absorption Costing.

Answer to Question 2.
Total Period Cost = Fixed Selling and Administrative Expense + (Units Sold * Variable selling and Administrative Cost per Unit)
Variable selling and Administrative Cost per Unit = Sales Commission + Variable Administrative Cost per Unit
Variable selling and Administrative Cost per Unit = $1.30 + $0.35
Variable selling and Administrative Cost per Unit = $1.65

Total Period Cost = $4,200 + (5,000 * $1.65)
Total Period Cost = $4,200 + $8,250
Total Period Cost = $12,450

ekkarill92 answered 1 year ago

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