Required 9-29 Absorption and variable costing. Company MJT has the following budgeted information for the year 2014 concerning product TEUN: Production: 19,000 units . Fixed manufacturing costs: $800,000 ■ Variable manufacturing costs per unit: $3 ■ Variable S&A costs per unit: $0.25 ■ Selling price per unit: $45 The owner of MJT needs your help in determining the denominator for the fixed manufacturing costs in order to calculate the product costs. His machines are capable of producing 25,000 units per year, but only if nothing goes wrong and they produce at the maximum level at all times. If the owner gives his company some slack and takes into account the necessary maintenance, he can produce 22,000 units every year. When he looks a few years ahead, the average number of products he expects to sell yearly is 20,000 units. If he takes a closer look at the year 2014 and takes specific (market) conditions into consideration, he esti- mates sales of 21,000 units. 1. What is the theoretical capacity, the practical capacity, the normal capacity, and the master budget capacity for MJT? 2. Which capacity would you suggest to calculate the product costs of TEUN? Is this relevant for the absorption costing cost or the variable costing cost? Why? 3. Calculate the product cost of TEUN according to absorption costing. 4. Calculate the product cost of TEUN according to variable costing. 5. Calculate the absorption costing profit. 6. Calculate the variable costing profit.
Required 9-29 Absorption and variable costing. Company MJT has the following budgeted information for the year 2014 concerning product TEUN: Production: 19,000 units . Fixed manufacturing costs: $800,000 ■ Variable manufacturing costs per unit: $3 ■ Variable S&A costs per unit: $0.25 ■ Selling price per unit: $45 The owner of MJT needs your help in determining the denominator for the fixed manufacturing costs in order to calculate the product costs. His machines are capable of producing 25,000 units per year, but only if nothing goes wrong and they produce at the maximum level at all times. If the owner gives his company some slack and takes into account the necessary maintenance, he can produce 22,000 units every year. When he looks a few years ahead, the average number of products he expects to sell yearly is 20,000 units. If he takes a closer look at the year 2014 and takes specific (market) conditions into consideration, he esti- mates sales of 21,000 units. 1. What is the theoretical capacity, the practical capacity, the normal capacity, and the master budget capacity for MJT? 2. Which capacity would you suggest to calculate the product costs of TEUN? Is this relevant for the absorption costing cost or the variable costing cost? Why? 3. Calculate the product cost of TEUN according to absorption costing. 4. Calculate the product cost of TEUN according to variable costing. 5. Calculate the absorption costing profit. 6. Calculate the variable costing profit.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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9-29 Absorption and variable costing. Company MJT has the following budgeted information for the
year 2014 concerning product TEUN:
■ Production: 19,000 units
■ Fixed manufacturing costs: $800,000
■ Variable manufacturing costs per unit: $3
■ Variable S&A costs per unit: $0.25
■ Selling price per unit: $45
The owner of MJT needs your help in determining the denominator for the fixed manufacturing costs in
order to calculate the product costs. His machines are capable of producing 25,000 units per year, but only
if nothing goes wrong and they produce at the maximum level at all times. If the owner gives his company
some slack and takes into account the necessary maintenance, he can produce 22,000 units every year.
When he looks a few years ahead, the average number of products he expects to sell yearly is 20,000 units.
If he takes a closer look at the year 2014 and takes specific (market) conditions into consideration, he esti-
mates sales of 21,000 units.
1. What is the theoretical capacity, the practical capacity, the normal capacity, and the master budget
capacity for MJT?
2. Which capacity would you suggest to calculate the product costs of TEUN? Is this relevant for the
absorption costing cost or the variable costing cost? Why?
3. Calculate the product cost of TEUN according to absorption costing.
4. Calculate the product cost of TEUN according to variable costing.
5. Calculate the absorption costing profit.
6. Calculate the variable costing profit.
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