â¢Explain the difference between variable and full costing.
â¢Explain why income calculated under full absorption costingwill be greater than income calculated under variable costing whenproduction exceeds sales.
â¢Explain how a manufacturing company can "bury" fixedmanufacturing costs in ending inventory under full absorptioncosting.
â¢Explain the difference between variable and full costing.
â¢Explain why income calculated under full absorption costingwill be greater than income calculated under variable costing whenproduction exceeds sales.
â¢Explain how a manufacturing company can "bury" fixedmanufacturing costs in ending inventory under full absorptioncosting.
Related questions
Mario's Foods produces frozen meals, which it sells for $9 each.The company uses the FIFO invenotry costing method, and it computesa new monthy fixed manufactoring overhead rate based on the actualnumber of meals produced that month. All cost and production levelsare exactly as planned. The following data are from the company'sfirst two months in business:
| JAN | FEB | |
| Sales........................ | 1,600 meals | 1,900 meals |
| Production............... | 2,000 meals | 1,600 meals |
| Variable manufactoring expense per meal | $5 | $5 |
| Sales commision expense per meal | $2 | $2 |
| Total fixed manfucuring overhead | $800 | $800 |
| Total fixed makerting and administrative expenses | $700 | $700 |
Requirements:
1. Compute the product cost per meal produced underabsorptioncosting and under variable costing. Do this first for January, andthen for Febuary.
2. Prepare seperate monthly income statements for January andfor February, using the following:
a. Absorrption costing
b. Variable Costing
3. Is operating income higher under absorption costing orvariable costing in January? In February? Explain the pattern ofdifferences in operating income based on absorption costing versusvariable costing.
Requirement 1. Compute the product cost permeal under absortion costing and under variable costing. Do thisfirst for January and the Febuary
| JAN | FEB | |||
| Absorbtion Costing | Variable Costing | Absorption Costing | Variable Costing | |
| Total Product cost |
Requirement 2a. Prepare seperate monthly incomestatements for January and for Feb, using absorption costing
Mario's Foods o
Contribution Margin Income Statement (variablecosting)
Month Ended
| Jan 31 | Feb 31 | ||
| Less | |||
Requirement 2b. Prepare Marios Foods Jan and Feb incomeStatement using variable costing
Requirement 3. Is operating income higher under absorptioncosting or variable costing in Jan? In Feb? Explain the pattern ofdifferences in operating income based on absorption costing versusvariable costing.
In Jan, absorption costing operating income_____(equals,exceedsor less than) variable costing income. This is because unitsproduced ______(equal to, greater than, less than) units weresold.
Absorption costing some of _____(Jan or Feb) __________(fixedmanufacturing overhead, nonmaufactoring, variable maufactoringoverhead) costs in the units of ending inventory. These cost willnot be_____(capitalized, expensed, paid in for cash) until thoseare sold. Deferring these _________ ( fixed manufactoring overhead,nonmanufactoring, variable manufactoring overhead)cost to thefuture _______ (Increases, Decreases)January's absoprtion costingincome.
In Feb, absorption costing operating income ________ (equals,exceeds, less than) variable costing operating income. This isbecause units produced were _____ (equal to, greather than, lessthan)units sold for the month.
As inventory______(increases, declines) as was the case in thisFebruary, January's ________(fixed manufactoring overhead,nonmanufactoring, variable manufactoring overhead) costs thatabsorption costing assigned to that inventory are expensed in_______(Jan, Feb). This _______ ( increases, decreases)Febuary'sabsorption costing income.
