Outback, Ltd., manufactures tactical LED flashlights in Melbourne, Australia. Th

Question

Outback, Ltd., manufactures tactical LED flashlights in Melbourne, Australia. The firm uses an absorption-costing system for internal reporting purposes; however, the company is considering using variable costing. Data regarding planned and actual operations for 20x4 follow:

     The budgeted per-unit cost figures were based on the company producing and selling 137,000 units in 20x4. Outback uses a predetermined overhead rate for applying manufacturing overhead to its product. A total manufacturing overhead rate of $9.20 per unit was employed for absorption costing purposes in 20x4. Any overapplied or underapplied manufacturing overhead is closed to the Cost of Goods Sold account at the end of the year. The 20x4 beginning finished-goods inventory for absorption costing purposes was valued at the 20x3 budgeted unit manufacturing cost, which was the same as the 20x4 budgeted unit manufacturing cost. There are no work-in-process inventories at either the beginning or the end of the year. The planned and actual unit selling price for 20x4 was $70.90 per unit.

Compute the value of Outback’s 20x4 ending finished-goods inventory under absorption costing.(Do not round intermediate calculations.)

Compute the value of Outback’s 20x4 ending finished-goods inventory under variable costing. (Do not round intermediate calculations.)

Compute the difference between Outback’s 20x4 reported operating income calculated under absorption costing and calculated under variable costing. (Do not round intermediate calculations.)

Please explain the formulas you used and how you got your answer. Thanks!

Outback, Ltd., manufactures tactical LED flashlights in Melbourne, Australia. The firm uses an absorption-costing system for internal reporting purposes; however, the company is considering using variable costing. Data regarding planned and actual operations for 20x4 follow:

Explanation / Answer

1) closing inventory (actual) = Beginning Inventory + Units produced - units sold
Closing Inventory = 43,000+128,000 - 121,000 = 50,000 units
Cost per unit = Direct material per unit + direct labour per unit + Variable manufacturing overhead + fixed Manufacturing overhead
Cost per unit = $12.40 + $9.70 + $5.10 + $4.10 = $31.30
Ending finished-goods inventory under absorption costing = Closing Inventory x Cost per unit = 50,000 units x $31.30 = $1,565,000
2)

Closing Inventory = 43,000+128,000 - 121,000 = 50,000 units
Cost per unit = Direct material per unit + direct labour per unit + Variable manufacturing overhead
Cost per unit = $12.40 + $9.70 + $5.10 = $27.20
Ending finished-goods inventory under Variable costing = Closing Inventory x Cost per unit = 50,000 units x $27.20= $1,360,000
3)

Increase in inventory in units = Production - sales = 128,000 - 121,000 = 7,000 units
Fixed manufacturing overhead = $4.10
Difference in reported income = Increase in inventory in units x Fixed manufacturing overhead = 7,000 units x $4.10 = $28,700

Related Questions

Navigate

• Browse (All)
• Browse O
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.