The following data has been taken from Air-Tite company in its first year of bus

Question

The following data has been taken from Air-Tite company in its first year of business.


Units produced 200,000
Units sold 180,000
Units in ending inventory 20,000
Fixed manufacturing overhead $600,000


(a) Compute the amount of fixed manufacturing overhead that would be expensed in the current year if full absorption costing is used.
(b) Compute the amount of fixed manufacturing overhead that would be expensed in the current year if variable costing is used.
(c) Compute the amount of fixed manufacturing overhead that would be included in ending inventory under full absorption costing. (Points : 25)

Explanation / Answer

(a) Compute the amount of fixed manufacturing overhead that would be expensed in the current year if full absorption costing is used. = 400,000/(80,000+20,000) X 80,000 = 320,000 (b) Compute the amount of fixed manufacturing overhead that would be expensed in the current year if variable costing is used. Total manufacturing cost will be expenses out i.e. 400,000 under variable costing (c) Compute the amount of fixed manufacturing overhead that would be included in ending inventory under full absorption costing = 400,000/(80,000+20,000) X 20,000 = 80,000

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