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13 Aug 2018

6-2 Are selling and administrative expenses treated as product costs or as period costs under variable costing?

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Sixta Kovacek
Sixta KovacekLv2
14 Aug 2018

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Crossbow Corp. produces a single product. Data concerning June's operations follow: Units in beginning inventory 0 Units produced 6,000 Units sold 5,000 Variable costs per unit: Manufacturing $ 7 Selling and administrative $ 3 Fixed costs in total: Manufacturing $12,000 Selling and administrative $ 3,000 For the year in question, net operating income under variable costing will be: higher than net operating income under absorption costing. lower than net operating income under absorption costing. the same as net operating income under absorption costing. The relation between absorption costing and variable costing net operating income cannot be determined.

Absorption and Variable Costing Comparisons Peachtree Companymanufactures peach jam. Because of bad weather, its peach crop wassmall. The following data have been gathered for the summer quarterof 2014: Beginning inventory (cases) 0 Cases produced 9,000 Casessold 8,200 Sales price per case $ 60 Direct materials per case $ 8Direct labor per case $ 9 Variable manufacturing overhead per case$ 3 Total fixed manufacturing overhead $ 320,000 Variable sellingand administrative cost per case $ 2 Fixed selling andadministrative cost $ 48,000 (a) Prepare a functional incomestatement for the quarter using absorption costing. (Round answersto the nearest dollar. Do not use negative signs with your answers,EXCEPT if you calculate a net loss.) Peachtree Company Functional(Absorption Costing) Income Statement For the Summer Quarter 2014Sales $Answer Cost of goods sold: Variable costs $Answer Fixedcosts Answer Goods available Answer Ending inventory Answer AnswerGross profit Answer Operating expenses: Variable selling andadministrative $Answer Fixed selling and administrative AnswerAnswer Net income (loss) $Answer (b) Prepare a contribution incomestatement for the quarter using variable costing. (Do not usenegative signs with your answers, EXCEPT if you calculate a netloss.) Peachtree Company Contribution (Variable Costing) IncomeStatement For the Summer Quarter 2014 Sales $Answer Variableexpenses: Manufacturing $Answer Selling and administrative AnswerAnswer Contribution margin Answer Fixed expenses: Manufacturingoverhead $Answer Selling and administrative Answer Answer Netincome (loss) $Answer (c) What is the value of ending inventoryunder absorption costing? (Round answer to the nearest wholenumber.) $Answer (d) What is the value of ending inventory undervariable costing? $Answer (e) The difference in the value of endinginventory in parts (c) and (d) is explained by the followingdifference between absorption and variable costing: Variablecosting treats all manufacturing costs as variable costs whileabsorption costing treats only variable manufacturing costs asvariable costs. Absorption costing treats fixed costs as periodcosts while variable costing treats fixed costs as product costs.Variable costing assigns only variable manufacturing costs toproducts while absorption costing assigns both variable and fixedmanufacturing costs to products. Absorption costing treats allmanufacturing costs as period costs while variable costing treatsonly variable manufacturing costs as period costs. Check Next

Sproull Inc., which produces a single product, has provided thefollowing data for its most recent month of operation: Number ofunits produced 7,700 Variable costs per unit: Direct materials $157 Direct labor $ 81 Variable manufacturing overhead $ 3 Variableselling and administrative expenses $ 9 Fixed costs: Fixedmanufacturing overhead $ 415,800 Fixed selling and administrativeexpenses $ 146,300 The company had no beginning or endinginventories.

Required:
a.

Compute the unit product cost under absorption costing
b.

Compute the unit product cost under variable costing.

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