Question

Use the following information for questions 1-5:

# of units produced	6,600
Variable Costs per Unit:
Direct Materials	$46
Direct Labor	$16
Variable Manufacturing Overhead	$8
Variable Selling & Admin. Expense	$4
Fixed Costs per year:
Fixed Manufacturing Overhead	$234,300
Fixed Selling & Admin	$161,700

The Absorption Costing Unit Product Cost is:

$100.20

$105.50

$74

$70

The Variable Costing Unit Product Cost is:

$70

$74

$105.50

$100.20

If 6,000 units are sold during the period, total period cost under variable costing would be:

$188,100

$396,000

$422,400

$420,000

If 6,000 units are sold during the period, total period cost under absorption costing would be:

$188,100

$185,700

$234,300

$422,400

If 6,000 units are sold during the period, net income under the absorption costing approach will be:

$15,750 lower than net income under the variable costing approach

$15,750 higher than net income under the variable costing approach

$21,300 higher than net income under the variable costing approach

$21,300 lower than net income under the variable costing approach

Answer 1

			Absorption Costing Amount	Variable Costing Amount
WORKING NOTES : 1
	beginning Inventory	-	Units
	Unit Produced =	6,600	Units
	Unit Sold	6,000	Units
	Closing Stock	600	Units
Solution: 1 & 2
	Calculation of cost of production units by using absorption and variable Costing
	Particulars	Absorption Costing Amount	Variable Costing Amount
	Direct Materials	$                   46.00	$                   46.00
	Direct Labor	$                   16.00	$                   16.00
	Vairable Manufacturing Overhead	$                     8.00	$                     8.00
	Fixed Manufacturing Overhead ($ 234,300 / 6,600Units)	$                   35.50	$                          -
	Cost of Production	$                 105.50	$                   70.00
	Answer =
	Absorption Costing unit Product Cost =$ 105.50
	Variable Costing Unit product Cost      = $ 70
Solution: 3 & 4
	CALCULATION OF PERIOD COST	Absorption Costing	Variable Costing
	Fixed Manufacturing overhead	$                          -	$              234,300
	Fixed Selling and administ.	$              161,700	$              161,700
	Variable Selling and adminis. Expenses( 6000 Units X $ 4)	$                 24,000	$                          -
	Total Period Cost	$              185,700	$              396,000
	Answer =
	Period cost under Varible Cost = $ 396,000
	Period cost under Absorption Cost = $ 185,700
Solution: 5
	Differene in due Fixed overhead included in ending inventory under absorption costing
	Ending inventory	600	Units
	X By	"X" By
	Fixed Overhead cost per unit inluded in absorption Costing	$                   35.50
	Difference = (AXB)	$                 21,300
	Answer = $21,300 lower than net income under the variable costing approach