Question

23. Bungalow Industries manufactures and sells hardware for homes such as door knobs and cabinet pulls. Each door knob sells for $15 per unit and during its first year of operations, Bungalow produced 24,000 units and sold 20,000 units. The company has fixed manufacturing overhead costs of $126,000 and fixed selling and administrative expenses of $32,000. Each door knob has $3.00 of direct materials, $1.00 of direct labor and $0.50 of variable overhead. Which of the following is not true? A. If Bungalow uses absorption costing, there is $21,000 of fixed costs in ending inventory. B. If Bungalow uses variable costing, profit for the door knob division is $52,000. C. If Bungalow uses absorption costing, profit for the door knob division is $73,000. D. The average cost per door knob under absorption costing is higher than the average cost per door knob under direct costing. E. Next year, Bungalow produces 22,000 units and sells 26,000 units. As a result, profit for the year for the door knob division is equal for absorption and direct costing.

Answer 1

ANSWER :E) Next year Bungalow produces 22000 units and sold 26000 units as a result profit for the year for the door knob division is equal for Absorption and direct costing ( it is not true)

explanation

option A Is true because fixed manufacturing incurred in inventory = (24000-20000)*5.25 = 21000

option B is true because variable costing income for knob division is 52000 .

option C is true because absorption costing profit is 73000 .

option D is true because average cost per door knob under absorption costing is higher than average cost under variable costing
option E is not true because profits are not equal if produced 22000 units and sold 26000 units

next year profits

absorption costing profit = 94000

variable costing profit = 115000