Question

Variable Costing and Over/Under Producing

Cathy's Mats produces and sells artistic placemats for dining room tables. These placemats are manufactured out of recycled plastics. For last year and this year each mat has a variable manufacturing cost of $3, and fixed manufacturing overhead is $150,000 per year (both Last Year and This Year). Cathy's Mats incurs no other costs. The following table summarizes the selling price and the number of mats produced and sold Last Year and This Year:

	Last Year		This Year
Selling price	$	4.00	$	4.00
Variable manufacturing cost	$	2.00	$	2.00
Fixed manufacturing cost	$	130,000	$	130,000
Units produced		140,000		40,000
Units sold		110,000		50,000

Cathy's Mats uses FIFO (First-in First Out) to value its ending inventory. Last Year Cathy's Mats had no beginning inventory.

Required:

a. Prepare income statements for Last Year and This Year using absorption costing.
b. Prepare income statements for Last Year and This Year using variable costing.

c. What is the value of the ending inventory using the FIFO method?

d. What is the value of the ending inventory using the LIFO method?

Answer 1

Here in question, there is difference in the details given above the table and details in the table in variable cost and fixed cost.
Solution is given on the basis of Details given in the table.