Huron Chalk Company manufactures sidewalks chalk which it sells online by the bo

Question

Huron Chalk Company manufactures sidewalks chalk which it sells online by the box at $25 per unit. Huron uses an actual costing system, which means that the actual costs of direct material, direct labor, and manufacturing verhead are entered into the work-in-process inventory. The actual application rate for manufacturing overhead is computed each year; actual manufcturing overhead is divided by actual production (in units) to compute the application rate. Information for Huron's first two years of operations is as follows: Year 1 Year 2 Sales (in units) 2,500 2,500 Production (in units) 3,000 2,000 Production Costs: Variable manufacturing costs: $10,500 $7,000 Fixed manufacturing overhead: $21,000 $21,000 Selling and administrative expenses: Variable: $12,500 12,500 Fixed: 10,000 10,000 What was the total of all costs expensed on the operating income statement across both years under absorption costing and under variable costing? Huron Chalk Company manufactures sidewalks chalk which it sells online by the box at $25 per unit. Huron uses an actual costing system, which means that the actual costs of direct material, direct labor, and manufacturing verhead are entered into the work-in-process inventory. The actual application rate for manufacturing overhead is computed each year; actual manufcturing overhead is divided by actual production (in units) to compute the application rate. Information for Huron's first two years of operations is as follows: Year 1 Year 2 Sales (in units) 2,500 2,500 Production (in units) 3,000 2,000 Production Costs: Variable manufacturing costs: $10,500 $7,000 Fixed manufacturing overhead: $21,000 $21,000 Selling and administrative expenses: Variable: $12,500 12,500 Fixed: 10,000 10,000

Explanation / Answer

Absorption Costing Particulars Units Value per unit Total Sales 2500 25 62500 Variable Manufcturing Cost 3000 3.5 10500 Fixed Manufacturing Cost 3000 7 21000 Total production Cost 3000 10.5 31500 Variable Selling and dmin cost 2500 5 12500 Fixed Selling and admin cost 2500 4 10000 Total Cost 54000 Variable Costing Particulars Units Value per unit Total Sales 2500 25 62500 Variable Manufcturing Cost 3000 3.5 10500 Production Cost 3000 3.5 10500 Variable Selling and dmin cost 2500 5 12500 Fixed Selling and admin cost 2500 4 10000 Fixed Manufacturing Cost 3000 7 21000 Total Cost 54000 Absorption Costing Year 1 Year 2 Sales 62500 62500 (COGS) Opening Inventory 5250 Variable Manufacturing Cost 10500 7000 Fixed Manufacturing Cost 21000 21000 (Closing Inventory) -5250 0 COGS 26250 28000 GrossMargin 36250 34500 Variable Selling and dmin cost -12500 -12500 Fixed Selling and admin cost -10000 -10000 Net Profit 13750 12000 Variable Costing Year 1 Year 2 Sales 62500 62500 (COGS) Opening Inventory 1750 Variable Manufacturing Cost 10500 7000 (Closing Inventory) -1750 0 COGS 8750 8750 GrossMargin 53750 53750 Variable Selling and dmin cost -12500 -12500 Fixed Selling and admin cost -10000 -10000 Fixed Manufacturing Cost -21000 -21000 Net Profit 10250 10250

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