A Company sells its product for $20 each and uses standard costing. The budgeted production level used to calculate the fixed manufacturing cost per unit is 4,000 units. Actual production was 4,200 units, and 5,000 units were sold. Assume a beginning inventory of 1,500 units and assume that the unit product cost for beginning inventory is the same as the current period unit product cost. Also, assume no price, efficiency, or spending variances. Any production volume variance is written off to cost of goods sold in the period it is incurred. Unit manufacturing costs are: Direct materials Direct manufacturing labor Variable MOH costs Total fixed MOH costs (budgeted and actual) Marketing expenses - variable Marketing expenses - fixed Required: a. b. $5.00 $1.50 $2.00 $10,000 per year $1.00 per unit $12,000 per year Prepare an income statement using absorption costing. Will the income based on variable costing be higher or lower than the income based on absorption costing - by how much? Explain your answer.
A Company sells its product for $20 each and uses standard costing. The budgeted production level used to calculate the fixed manufacturing cost per unit is 4,000 units. Actual production was 4,200 units, and 5,000 units were sold. Assume a beginning inventory of 1,500 units and assume that the unit product cost for beginning inventory is the same as the current period unit product cost. Also, assume no price, efficiency, or spending variances. Any production volume variance is written off to cost of goods sold in the period it is incurred. Unit manufacturing costs are: Direct materials Direct manufacturing labor Variable MOH costs Total fixed MOH costs (budgeted and actual) Marketing expenses - variable Marketing expenses - fixed Required: a. b. $5.00 $1.50 $2.00 $10,000 per year $1.00 per unit $12,000 per year Prepare an income statement using absorption costing. Will the income based on variable costing be higher or lower than the income based on absorption costing - by how much? Explain your answer.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
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Transcribed Image Text:A Company sells its product for $20 each and uses standard costing. The budgeted
production level used to calculate the fixed manufacturing cost per unit is 4,000 units.
Actual production was 4,200 units, and 5,000 units were sold. Assume a beginning
inventory of 1,500 units and assume that the unit product cost for beginning inventory is
the same as the current period unit product cost. Also, assume no price, efficiency, or
spending variances. Any production volume variance is written off to cost of goods sold
in the period it is incurred.
Unit manufacturing costs are:
Direct materials
Direct manufacturing labor
Variable MOH costs
Total fixed MOH costs (budgeted and actual)
Marketing expenses - variable
Marketing expenses - fixed
Required:
a.
b.
$5.00
$1.50
$2.00
$10,000 per year
$1.00 per unit
$12,000 per year
Prepare an income statement using absorption costing.
Will the income based on variable costing be higher or lower than the income
based on absorption costing - by how much? Explain your answer.
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