**Production and Cost Accounting: Absorption vs. Variable Costing****Question 23**Wrap-It Company, a manufacturer of wrapping paper, began operations on June 1 of the current year. During this time, the company produced 370,000 units and sold 310,000 units at a sales price of $50 per unit. Cost information for this period is shown in the following table:| **Production Costs** | ||------------------------------------------------|--------------------------------------------------------------|| Direct materials | $2.00 per unit || Direct labor | $0.80 per unit || Variable overhead | $814,000 in total || Fixed overhead | $481,000 in total || **Nonproduction Costs** | ||------------------------------------------------|--------------------------------------------------------------|| Variable selling and administrative | $78,000 in total || Fixed selling and administrative | $210,000 in total |**Tasks:**a. Prepare Wrap-It's December 31 income statement for the current year under absorption costing.b. Prepare Wrap-It's December 31 income statement for the current year under variable costing.**Explanation:**In this scenario, we need to create two separate income statements for Wrap-It Company as of December 31st of the current year. One will use **absorption costing** while the other will use **variable costing**.1. **Absorption Costing** includes all manufacturing costs (both fixed and variable) in the cost of a product.2. **Variable Costing** only includes variable manufacturing costs in the cost of a product. Fixed manufacturing overhead is treated as a period expense. ### Absorption Costing:Income Statement for Wrap-It Company (December 31)| **Sales Revenue** | ||---------------------------------------------------------|-----------------------------------------|| Total units sold: 310,000 units @ $50 per unit | $15,500,000 || **Cost of Goods Sold (COGS)** | ||---------------------------------------------------------|-----------------------------------------|| Direct materials: 310,000 units @ $2.00 per unit | $620,000 || Direct labor: 310,000 units @ $0.80 per unit | $248,000 || Variable overhead: 310,000 units @ ($814,000/370,000) per unit | $682,054 || Fixed overhead: $

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Description: **Production and Cost Accounting: Absorption vs. Variable Costing****Question 23**Wrap-It Company, a manufacturer of wrapping paper, began operations on June 1 of the current year. During this time, the company produced 370,000 units and sold 310,00

Absorption (full) costing: Absorption (full) costing is a costing technique in which all the…

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Wrap-It Company, a manufacturer of wrapping paper, began operations on June 1 of the current year. During thi time, the company produced 370,000 units and sold 310,000 units at a sales price of $50 per unit. Cost information for this period is shown in the following table: Production costs Direct materials Direct labor $2.00 per unit $.80 per unit Variable overhead $814,000 in total $481,000 in total Fixed overhead Nonproduction costs Variable selling and administrative $78,000 in total Fixed selling and administrative $210,000 in total a. Prepare Wrap-It's December 31 income statement for the current year under absorption costing. b. Prepare Wrap-It's December 31 income statement for the current year under variable costing.

Wrap-It Company, a manufacturer of wrapping paper, began operations on June 1 of the current year. During thi time, the company produced 370,000 units and sold 310,000 units at a sales price of $50 per unit. Cost information for this period is shown in the following table: Production costs Direct materials Direct labor $2.00 per unit $.80 per unit Variable overhead $814,000 in total $481,000 in total Fixed overhead Nonproduction costs Variable selling and administrative $78,000 in total Fixed selling and administrative $210,000 in total a. Prepare Wrap-It's December 31 income statement for the current year under absorption costing. b. Prepare Wrap-It's December 31 income statement for the current year under variable costing.

FINANCIAL ACCOUNTING

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ISBN:9781259964947

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Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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