Cost of Goods Manufactured, using Variable Costing and Absorption Costing On December 31, the end of...

Cost of Goods Manufactured, using Variable Costing and Absorption Costing

On December 31, the end of the first year of operations, Frankenreiter Inc., manufactured 2,400 units and sold 2,100 units. The following income statement was prepared, based on the variable costing concept:

Frankenreiter Inc. Variable Costing Income Statement For the Year Ended December 31, 20Y1
Sales		$588,000
Variable cost of goods sold:
Variable cost of goods manufactured	$321,600
Inventory, December 31	(40,200)
Total variable cost of goods sold		281,400
Manufacturing margin		$306,600
Total variable selling and administrative expenses		71,400
Contribution margin		$235,200
Fixed costs:
Fixed manufacturing costs	$148,800
Fixed selling and administrative expenses	46,200
Total fixed costs		195,000
Income from operations		$40,200

Determine the unit cost of goods manufactured, based on (a) the variable costing concept and (b) the absorption costing concept.

Variable costing	$
Absorption costing	$

Solutions

Expert Solution

The two methods that is variable costing and absorption costing differ based on apportioning the Fixed costs to the units .

Under variable costing all the variable costs and fixed costs(manufacturing and non-manufacturing) are totaled and cost /unit is determined however in case of absorption costing method only variable costs are considered for calculating the cost/unit since fixed cost both manufacturing and non-manufacturing are treated as period costs that is they will not be included in the product cost .

Cost/unit of manufacturing using variable costing method :

Total variable costs + total fixed costs /Units manufactures

=( 321,600+71,400) + (148,800+46,200)/2400 units

= 588,000/2400 = $245/unit manufactured .

Cost /unit of manufacturing under absorption costs : As stated above only variable cost is considered for calculating product cost .

= Total variable costs /units manufactured

= 321,600+71,400/2400 = 163.75/unit .

Fixed costs both manufacturing and non-manufacturing will be only deducted as a whole figure from total contribution .

*Manufacturing cost means direct costs and non-manufacturing indicate selling and administration costs.*

ekkarill92 answered 1 year ago

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