Question

Outback Corporation manufactures tactical LED flashlights in Brisbane, Australia. The firm uses an absorption costing system for internal reporting purposes; however, the company is considering using variable costing. Data regarding Outback’s planned and actual operations for 20x1 follow:

	Budgeted Costs
	Per Unit				Total				Actual Costs
Direct material	$	13.10			$	1,807,800			$	1,650,600
Direct labor		9.50				1,311,000				1,197,000
Variable manufacturing overhead		4.90				676,200				617,400
Fixed manufacturing overhead		4.80				662,400				674,400
Variable selling expenses		7.50				1,035,000				907,500
Fixed selling expenses		7.10				979,800				979,800
Variable administrative expenses		2.40				331,200				290,400
Fixed administrative expenses		2.90				400,200				408,200
Total	$	52.20			$	7,203,600			$	6,725,300

	Planned Activity				Actual Activity
Beginning finished-goods inventory in units		37,000				37,000
Sales in units		138,000				121,000
Production in units		138,000				126,000

The budgeted per-unit cost figures were based on Outback producing and selling 138,000 units in 20x1. Outback uses a predetermined overhead rate for applying manufacturing overhead to its product. A total manufacturing overhead rate of $9.70 per unit was employed for absorption costing purposes in 20x1. Any overapplied or underapplied manufacturing overhead is closed to the Cost of Goods Sold account at the end of the year. The 20x1 beginning finished-goods inventory for absorption costing purposes was valued at the 20x0 budgeted unit manufacturing cost, which was the same as the 20x1 budgeted unit manufacturing cost. There are no work-in-process inventories at either the beginning or the end of the year. The planned and actual unit selling price for 20x1 was $71.20 per unit.

Required:
Was Outback’s 20x1 operating income higher under absorption costing or variable costing?
Also, compute the following:

1. The value of Outback Corporation’s 20x1 ending finished-goods inventory under absorption costing.
2. The value of Outback Corporation’s 20x1 ending finished-goods inventory under variable costing.
3. The difference between Outback Corporation’s 20x1 reported operating income calculated under absorption costing and calculated under variable costing.

Answer 1

Thankyou.........