Absorption vs. variable costingPete’s Plant Stands manufactures wooden stands used by plant nurseries. In May, the company sold 16,560 stands. The cost per unit for the 18,000 stands produced in May was as follows: Direct material $9.00 Direct labor 6.00 Variable overhead 3.00 Fixed overhead 4.00 Total $22.00 There were no beginning inventories for May and no work in process at the end of May. a. What is the value of ending finished goods inventory using absorption costing? $Answerb. What is the value of ending finished goods inventory using variable costing? $Answerc. Which accounting method, variable or absorption, would have produced the higher net income for May?
Absorption vs. variable costingPete’s Plant Stands manufactures wooden stands used by plant nurseries. In May, the company sold 16,560 stands. The cost per unit for the 18,000 stands produced in May was as follows: Direct material $9.00 Direct labor 6.00 Variable overhead 3.00 Fixed overhead 4.00 Total $22.00 There were no beginning inventories for May and no work in process at the end of May. a. What is the value of ending finished goods inventory using absorption costing? $Answerb. What is the value of ending finished goods inventory using variable costing? $Answerc. Which accounting method, variable or absorption, would have produced the higher net income for May?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Absorption vs. variable costing
Pete’s Plant Stands manufactures wooden stands used by plant nurseries. In May, the company sold 16,560 stands. The cost per unit for the 18,000 stands produced in May was as follows:
| Direct material | $9.00 |
| Direct labor | 6.00 |
| Variable |
3.00 |
| Fixed overhead | 4.00 |
| Total | $22.00 |
There were no beginning inventories for May and no work in process at the end of May.
a. What is the value of ending finished goods inventory using absorption costing? $Answer
b. What is the value of ending finished goods inventory using variable costing? $Answer
c. Which accounting method, variable or absorption, would have produced the higher net income for May?
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