Exercise 18.15 Absorption and Variable Costing with Over- and Underapplied Overh
ID: 2462441 • Letter: E
Question
Exercise 18.15
Absorption and Variable Costing with Over- and Underapplied Overhead
Flaherty, Inc., has just completed its first year of operations. The unit costs on a normal costing basis are as follows:
Actual fixed overhead was $12,000 less than budgeted fixed overhead. Budgeted variable overhead was $5,000 less than the actual variable overhead. The company used an expected actual activity level of 12,000 direct labor hours to compute the predetermined overhead rates. Any overhead variances are closed to Cost of Goods Sold.
Required:
1. Compute the unit cost using (a) absorption costing and (b) variable costing. Round your answers to the nearest cent.
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2. Prepare an absorption-costing income statement.
Flaherty, Inc.
Absorption-Costing Income Statement
For the First Year of Operations
$
Less:
$
Gross profit
$
Operating income
$
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3. Prepare a variable-costing income statement.
Flaherty, Inc.
Variable-Costing Income Statement
For the First Year of Operations
$
Less:
$
Contribution margin
$
Less:
$
$
Operating income
$
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4. Reconcile the difference between the two income statements.
The absorption costing generates an income $ - Select your answer -higherlowerCorrect 2 of Item 4 than variable costing.
Explanation / Answer
Answer for question no.1:
Answer for question no.2.a:
Absoprtion costing income statement:
Answer for question no.2.b:
Answer for question no. 4:
Reconciliation of the diffferene between the two income statements
Operating income as per variable cosing statement = -$5,200
Add: Fixed manufacturing overhead in closing stock =$4.50 *(24,000 -21,300) =$12,150
Operating income as per absorption costing system =$6,950.
The absoprtion costing generates an income of $6,950 higher than the variable costing.
Particulars Absoprtion costing Variable costing Direct materials $6.00 $6.00 Direct labour $9.00 $9.00 Variable manufacturing overhead $3.00 $3.00 Fixed manufacturing overhead $4.50 Total unit product cost $22.50 $18.00Related Questions
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