Flaherty, Inc., has just completed its first year of operations. The unit costs on a normal costing basis are as follows:
Absorption and Variable Costing with Over- and Underapplied
Flaherty, Inc., has just completed its first year of operations. The unit costs on a normal costing basis are as follows:
| Direct materials (2 lbs. @ 1.20) | $2.40 | |
| Direct labor (0.4 hr. @ 15.00) | 6.00 | |
| Variable overhead (0.4 hr. @ 4.00) | 1.60 | |
| Fixed overhead (0.4 hr. @ 6.00) | 2.40 | |
| Total | $12.40 | |
| Selling and administrative costs: | ||
| Variable | $1.60 | per unit |
| Fixed | $221,000 |
During the year, the company had the following activity:
| Units produced | 26,000 | |
| Units sold | 23,400 | |
| Unit selling price | $35 | |
| Direct labor hours worked | 10,400 |
Actual fixed overhead was $11,600 less than budgeted fixed overhead. Budgeted variable overhead was $4,200 less than the actual variable overhead. The company used an expected actual activity level of 10,400 direct labor hours to compute the predetermined overhead rates. Any overhead variances are closed to Cost of Goods Sold.
Required:
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1. Compute the unit cost using (a) absorption costing and (b) variable costing.
| Unit Cost | |
| Absorption costing | $fill in the blank d62aaff35071013_1 |
| Variable costing | $fill in the blank d62aaff35071013_2 |
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2. Prepare an absorption-costing income statement. Round your answers to the nearest cent.
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| Less: | ||
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| Gross profit | $fill in the blank e423c7fd0fbcfda_8 | |
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| Operating income | $fill in the blank e423c7fd0fbcfda_11 |
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3. Prepare a variable-costing income statement. Round your answers to the nearest cent.
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| Add: | ||
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- Select - | - Select - |
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| Contribution margin | $fill in the blank add2d5ffb051ff2_10 | |
| Less: | ||
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- Select - | $- Select - |
| Operating income | $fill in the blank add2d5ffb051ff2_16 |
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4. Reconcile the difference between the two income statements.
The absorption costing generates an income ___ (more or less) than variable costing.
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