Variable versus absorption costing Williamson, Inc., manufactures digital voice recorders. During 2013, total costs associated with manufacturing 32,000 of the new EZ 9900 model (introduced this year) were as follows: Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $275,000Direct labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 454,000Variable manufacturing overhead. . . . . . . . . . . . . . . . . . . . . 115,200Fixed manufacturing overhead. . . . . . . . . . . . . . . . . . . . . . . 108,800Required:a. Calculate the cost per recorder under both variable costing and absorption costing.b. If 4,200 of these recorders were in finished goods inventory at the end of 2013, by how much and in what direction (higher or lower) would 2013 cost of goods sold be different under variable costing than under absorption costing?c. Express the digital voice recorder cost in a cost formula. What does this formula suggest the total cost of making an additional 500 recorders would be?
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Variable versus absorption costing Williamson, Inc., manufactures digital voice recorders. During 2013, total costs associated with manufacturing 32,000 of the new EZ 9900 model (introduced this year) were as follows:
Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $275,000
Direct labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 454,000
Variable manufacturing
Fixed manufacturing overhead. . . . . . . . . . . . . . . . . . . . . . . 108,800
Required:
a. Calculate the cost per recorder under both variable costing and absorption costing.
b. If 4,200 of these recorders were in finished goods inventory at the end of 2013, by how much and in what direction (higher or lower) would 2013 cost of goods sold be different under variable costing than under absorption costing?
c. Express the digital voice recorder cost in a cost formula. What does this formula suggest the total cost of making an additional 500 recorders would be?
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