T3-5 Variable versus absorption costing (LO 1, 2) Sarah Stoner sells handmade jewelry that she designs herself. The items aren't expensive, and she has a loyal following in her town and the surrounding area. Sarah incurred the following unit costs to produce 60,000 items. Direct materials $3.00 Direct labor $ 1.75 Variable overhead $0.75 Fixed overhead $4.25 Sarah began the year with no inventory. During the year she sold 45,000 items for $15 each, incurring $0.50 in selling costs per item plus $5,000 in advertising and other selling expenses. Questions a.Under variable costing, what is Sarah's operating income? b.Under absorption costing, what is Sarah's ending Finished Goods Inventory balance?
T3-5 Variable versus absorption costing (LO 1, 2) Sarah Stoner sells handmade jewelry that she designs herself. The items aren't expensive, and she has a loyal following in her town and the surrounding area. Sarah incurred the following unit costs to produce 60,000 items. Direct materials $3.00 Direct labor $ 1.75 Variable overhead $0.75 Fixed overhead $4.25 Sarah began the year with no inventory. During the year she sold 45,000 items for $15 each, incurring $0.50 in selling costs per item plus $5,000 in advertising and other selling expenses. Questions a.Under variable costing, what is Sarah's operating income? b.Under absorption costing, what is Sarah's ending Finished Goods Inventory balance?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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T3-5 Variable versus absorption costing (LO 1, 2) Sarah Stoner sells handmade jewelry that she designs herself. The items aren't expensive, and she has a loyal following in her town and the surrounding area. Sarah incurred the following unit costs to produce 60,000 items.
| Direct materials |
$3.00
|
| Direct labor |
$ 1.75
|
| Variable |
$0.75
|
| Fixed overhead |
$4.25
|
Sarah began the year with no inventory. During the year she sold 45,000 items for $15 each, incurring $0.50 in selling costs per item plus $5,000 in advertising and other selling expenses.
Questions
a.Under variable costing, what is Sarah's operating income?
b.Under absorption costing, what is Sarah's ending Finished Goods Inventory balance?
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