Compute manufacturing cost under absorption and variable costing and explain dif

Question

Compute manufacturing cost under absorption and variable costing and explain difference. Crate Express Co. produces wooden crates used for shipping products by ocean liner. In 2017, Crate Express incurred the following costs. Assume Crate Express used an average 500 kilowatt-hours each month over the past year. What is Crate Express's total manufacturing cost if it uses a variable costing approach? What is Crate Express's total manufacturing cost if it uses an absorption costing approach? What accounts for the difference in manufacturing costs between these two costing approaches?

Explanation / Answer

Answer a. Crate Express's Total Manufacturing Cost Under Variable Costing Particulars Amount Wood Used                54,000 Direct Labor                43,000 Total Manufacturing Cost                97,000 Answer b. Crate Express's Total Manufacturing Cost Under Absorption Costing Particulars Amount Wood Used                54,000 Direct Labor                43,000 Nails                      350 Plant Utilities ($1500 + $0.50 x 500)                  1,750 Rent Expenses                21,400 Total Manufacturing Cost             120,500 Answer c. Fixed manufacturing Costs accounts for the difference in Manufacturing Costs between these two approaches.

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