Murphy’s Foods produces frozen meals, which it sells for $7 each. The company uses the FIFO inventory costing method, and it computes a new monthly fixed manufacturing overhead rate based on the actual number of meals produced that month. All costs and production levels are exactly as planned. The following data are from the company’s first two months in business: The table shows the following data with cost in dollars: Sales January: 1,400 meals February: 1,600 meals Production January: 2,000 meals February: 1,400 meals Variable manufacturing expense per meal January: 5 February: 5 Sales commission expense per meal January: 1 February: 1 Total fixed manufacturing overhead January: 700 February: 700 Total fixed marketing and administrative expenses January: 500 February: 500 Requirements 1. Compute the product cost per meal produced under absorption costing and under variable costing. Do this first for January and then for February. 2. Prepare separate monthly income statements for January and for February, using (a) absorption costing and (b) variable costing. 3. Is operating income higher under absorption costing or variable costing in January? In February? Explain the pattern of differences in operating income based on absorption costing versus variable costing.

Name: Murphy’s Foods produces frozen meals, which it sells for $7 each. The
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Description: Murphy’s Foods produces frozen meals, which it sells for $7 each. The company uses the FIFO inventory costing method, and it computes a new monthly fixed manufacturing overhead rate based on the actual number of meals produced that month. All costs a

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Murphy’s Foods produces frozen meals, which it sells for $7 each. The company uses the FIFO inventory costing method, and it computes a new monthly fixed manufacturing overhead rate based on the actual number of meals produced that month. All costs and production levels are exactly as planned. The following data are from the company’s first two months in business:

The table shows the following data with cost in dollars:

Sales
- January: 1,400 meals
- February: 1,600 meals
Production
- January: 2,000 meals
- February: 1,400 meals
Variable manufacturing expense per meal
- January: 5
- February: 5
Sales commission expense per meal
- January: 1
- February: 1
Total fixed manufacturing overhead
- January: 700
- February: 700
Total fixed marketing and administrative expenses
- January: 500
- February: 500

Requirements
1. 1. Compute the product cost per meal produced under absorption costing and under variable costing. Do this first for January and then for February.
2. 2. Prepare separate monthly income statements for January and for February, using (a) absorption costing and (b) variable costing.
3. 3. Is operating income higher under absorption costing or variable costing in January? In February? Explain the pattern of differences in operating income based on absorption costing versus variable costing.

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