Answered: Content Ltd manufactures and sells…

Principles of Cost Accounting

17th Edition

ISBN:9781305087408

Author:Edward J. Vanderbeck, Maria R. Mitchell

Publisher:Edward J. Vanderbeck, Maria R. Mitchell

Chapter8: Standard Cost Accounting—materials, Labor, And Factory Overhead

Section: Chapter Questions

Problem 20P: Jillian Manufacturing Inc. manufactures a single product and uses a standard cost system. The...

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Content Ltd manufactures and sells monitors and uses standard costing. For the month of May there was no beginning inventory, there were 3,200 units produced and 2,500 units sold. The manufacturing variable cost per unit is $350 and the variable operating cost per unit was $302.50. The actual and fixed manufacturing cost is $420,000 and the fixed operating cost is $85,000. The selling price per unit is $1000. The budgeted units to be produced are 2,800. There are no price-, efficiency-, or spending variances. Any production- volume variance is written off to cost of goods sold in the month in which it occurs.

Reconcile the difference in operating income calculated using variable costing and absorption costing. Then explain why there is a difference in the operating profit under the two methods.

Definition Definition System of assigning an estimated cost to the product (instead of the actual cost) so that the product cost can be determined well in advance and the pricing of the product can be done on time. Since the actual cost cannot be predicted at the initial stage of the production process, the estimated cost is recorded in the books. Any deviation of the estimated cost of the actual cost is adjusted in the books at the end of the period.

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