🏷️ LIMITED TIME OFFER: GET 20% OFF GRADE+ YEARLY SUBSCRIPTION →
Log in
HomeTextbook Notes300,000CA170,000

AFM102 Chapter Notes - Chapter 8: Total Absorption Costing, Fixed Cost, Lean Manufacturing

40 views5 pages
orangecoyote929
21 Nov 2013
School
University of Waterloo
Department
Accounting & Financial Management
Course
AFM102
Professor
Tom Vance

For unlimited access to Textbook Notes, a Class+ subscription is required.

Document Summary

Selling and administrative expense absorption costing product costs period costs direct materials direct labour var. manuf. o"head fixed. manuf. o"head var. s&a expense fixed s&a expense variable costing product costs period costs. Cvp computations variable costing method blends well with the contribution approach to the income statement, and could be used immediately in cvp computations. When production and sales are equal operating income for both absorption and variable costing method is the same page 1 of 5. 08 variable costing the only difference that can exist between the 2 costing method is the amount of fixed manuf. ohead recog- nized as expense. When everything produced is sold, all fixed manuf. o"head assigned to the units of production under absorp- tion costing becomes part of the cogs. Oi is not affected by changes in production all fixed manuf. o"head of the current year are in- cluded in the cogs for that year.

Get access

Grade+20% off
$8 USD/m$10 USD/m
Billed $96 USD annually
Grade+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
40 Verified Answers
Class+
$8 USD/m
Billed $96 USD annually
Class+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
30 Verified Answers

Related Questions

The Dorset Corporation produces and sells a single product. The following data refer to the year just completed:

Beginning inventory 0
Units produced 34,000
Units sold 25,900
Selling price per unit $ 482
Selling and administrative expenses:
Variable per unit $ 16
Fixed per year $ 362,600
Manufacturing costs:
Direct materials cost per unit $ 240
Direct labor cost per unit $ 56
Variable manufacturing overhead cost per unit $ 34
Fixed manufacturing overhead per year $ 578,000

Assume that direct labor is a variable cost.

Required:

a. Compute the unit product cost under both the absorption costing and variable costing approaches.

b. Prepare an income statement for the year using absorption costing.

c. Prepare an income statement for the year using variable costing.

d. Reconcile the absorption costing and variable costing net operating income figures in (b) and (c) above.

Denton Company manufactures and sells a single product.
Cost data for the product are given below:

Variable costs per unit:

Direct materials $7
Direct labor $10
Variable manufacturing overhead $5
Variable selling and administrative $3
Total variable cost per unit $25

Fixed costs per month:

Fixed manufacturing overhead $ 315,000
Fixed selling and administrative $ 245,000
Total fixed cost per month $ 560,000
The product sells for $60 per unit.

Production and sales data for July and August, the first two months of operations, follow:
          Units Produced    Units Sold
July          17,500           15,000
August      17,500           20,000

The company’s Accounting Department has prepared absorption costing income statements for July and August as presented below:


                                                       July                 August
Sales                                            $900,000          $1,200,000    
Cost of goods sold                         $600,000              $800,000     
Gross margin                                 $300,000             $400,000    
Selling and administrative expenses  $290,000            $305,000     
Net operating income                       $10,000             $95,000   

Required:

1. Determine the unit product cost under absorption costing and variable costing.

2. Prepare contribution format variable costing income statements for July and August.

3. Reconcile the variable costing and absorption costing net operating income figures.
*July/August
Variable costing net operating income (loss)
Add/Deduct fixed manufacturing overhead cost deferred in/released from
inventory under absorption costing
Absorption costing net operating income/loss

 

Denton Company manufactures and sells a single product. Cost data for the product are given:

Variable costs per unit:
Direct materials $ 3
Direct labor 10
Variable manufacturing overhead 3
Variable selling and administrative 1
Total variable cost per unit $ 17
Fixed costs per month:
Fixed manufacturing overhead $ 63,000
Fixed selling and administrative 160,000
Total fixed cost per month $ 223,000

The product sells for $46 per unit. Production and sales data for July and August, the first two months of operations, follow:

Units
Produced		 Units
Sold
July 21,000 17,000
August 21,000 25,000

The company’s Accounting Department has prepared the following absorption costing income statements for July and August:

July August
Sales $ 782,000 $ 1,150,000
Cost of goods sold 323,000 475,000
Gross margin 459,000 675,000
Selling and administrative expenses 177,000 185,000
Net operating income $ 282,000 $ 490,000

Required:

1. Determine the unit product cost under:

a. Absorption costing.

b. Variable costing.

2. Prepare contribution format variable costing income statements for July and August.

3. Reconcile the variable costing and absorption costing net operating incomes.