Game Play manufactures video games that it sells for $42 each. The company uses a fixed manufacturing overhead allocation rate of $5 per game. Assume costs and production levels are exactly as planned. The following data are from Game Play's first two months in business during 2018: E (Click the icon to view the data.) i Data Table - X Read the requirements Octob Net Sales Revenue October November Cost of Goods Sold Sales 1,200 units 2,800 units Gross Profit Production 2,500 units 2,500 units Selling and Administrative Costs Variable manufacturing cost per game 15 $ 15 Operating Income $ Sales commission cost per game 3 3 Total fixed manufacturing overhead 12,500 12,500 Requirement 2b. Prepare monthly income s costing. variable Total fixed selling and administrative costs 9,000 9,000 Ga Variable Costin Print Done Octobl Net Sales Revenue 50,400 $ 117,600 $ 168,000 Variable Costs 21,600 50,400 72,000 Contribution Margin 28,800 67,200 96,000 Fixed Costs 21,500 21,500 43,000 7,300 $ 45,700 $ 53,000 Operating Income Requirement 3. Is operating income higher under absorption costing or variable costing in October? In November? Explain the pattern of differences in operating income based on absorption costing versus variable costing. In October, the operating income is higher under absorption costing. The primary reason for this is that in absorption costing, the fixed manufacturing overhead costs are distributed across the entire production | of fixed manufacturing overhead costs are run as part of the unit cost. Under the absorption costing method, 5 not expensed and remain in Finished Goods Inventory.
Game Play manufactures video games that it sells for $42 each. The company uses a fixed manufacturing overhead allocation rate of $5 per game. Assume costs and production levels are exactly as planned. The following data are from Game Play's first two months in business during 2018: E (Click the icon to view the data.) i Data Table - X Read the requirements Octob Net Sales Revenue October November Cost of Goods Sold Sales 1,200 units 2,800 units Gross Profit Production 2,500 units 2,500 units Selling and Administrative Costs Variable manufacturing cost per game 15 $ 15 Operating Income $ Sales commission cost per game 3 3 Total fixed manufacturing overhead 12,500 12,500 Requirement 2b. Prepare monthly income s costing. variable Total fixed selling and administrative costs 9,000 9,000 Ga Variable Costin Print Done Octobl Net Sales Revenue 50,400 $ 117,600 $ 168,000 Variable Costs 21,600 50,400 72,000 Contribution Margin 28,800 67,200 96,000 Fixed Costs 21,500 21,500 43,000 7,300 $ 45,700 $ 53,000 Operating Income Requirement 3. Is operating income higher under absorption costing or variable costing in October? In November? Explain the pattern of differences in operating income based on absorption costing versus variable costing. In October, the operating income is higher under absorption costing. The primary reason for this is that in absorption costing, the fixed manufacturing overhead costs are distributed across the entire production | of fixed manufacturing overhead costs are run as part of the unit cost. Under the absorption costing method, 5 not expensed and remain in Finished Goods Inventory.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text:Game Play manufactures video games that it sells for $42 each. The company uses a fixed manufacturing overhead allocation rate of $5 per game. Assume al
costs and production levels are exactly as planned. The following data are from Game Play's first two months in business during 2018:
|(Click the icon to view the data.)
Data Table
Read the requirements.
Octob
Net Sales Revenue
$
October
November
Cost of Goods Sold
Sales
1,200 units
2,800 units
Gross Profit
Production
2,500 units
2,500 units
Selling and Administrative Costs
Variable manufacturing cost per game
15 $
15
Operating Income
$
Sales commission cost per game
3
3
Total fixed manufacturing overhead
12,500
12,500
Requirement 2b. Prepare monthly income s
costing.
variable
Total fixed selling and administrative costs
9,000
9,000
Ga
Variable Costin
Print
Done
Octobe
Net Sales Revenue
$
50,400 $
117,600 $
168,000
Variable Costs
21,600
50,400
72,000
Contribution Margin
28,800
67,200
96,000
Fixed Costs
21,500
21,500
43,000
7,300 $
45,700 $
53,000
Operating Income
Requirement 3. Is operating income higher under absorption costing or variable costing in October? In November? Explain the pattern of differences in
operating income based on absorption costing versus variable costing.
In Otober, the operating income is higher under
absorption
costing. The primary reason for this is that
in absorption costing, the fixed manufacturing overhead costs
are distributed across the entire production
run as part of the unit cost. Under the absorption costing method,
| of fixed manufacturing overhead costs are
not expensed and remain in Finished Goods Inventory.
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