Adelphia Corporation, which uses absorption costing, just completed its first ye
ID: 2493155 • Letter: A
Question
Adelphia Corporation, which uses absorption costing, just completed its first year of operations. Planned and actual production equaled 12,000 units, and sales totaled 11,400 units at $139 per unit. Cost data for the year are as follows:
a. How much of the company's total cost for the year would be included as an expense on the period's income statement under (a) absorption costing and (b) variable costing?
Fixed
358,100
Direct material (per unit) $ 28 Conversion cost: Direct labor 504,000 Variable manufacturing overhead 420,000 Fixed manufacturing overhead 504,000 Selling and administrative costs: Variable (per unit) 30Fixed
358,100
Explanation / Answer
Companies total cost under different methods as follows:
Particulars
Cost
Absorption costing
Variable costing
Direct Material
$336,000
(12,000*$28)
$319,200
(11,400*$28)
$319,200
(11,400*$28)
Conversion Cost:
Direct Labour
$504,000
$478,800
(504,000*11,400/12,000)
$478,800
(504,000*11,400/12,000)
Variable Manufacturing Overhead
$420,000
$399,000
(420,000*11,400/12,000)
$399,000
(420,000*11,400/12,000)
Fixed Manufacturing Overhead***
$504,000
$478,800
(504,000*11,400/12,000)
$504,000
Selling and Administrative costs:
Variable cost
$360,000
(12,000*$30)
$342,000
(11,400*$30)
$342,000
(11,400*$30)
Fixed Cost
$358,100
$358,100
$358,100
Total Cost
$2,375,900
$2,401,100
***Fixed Manufacturing overheads are to be recognised in the year of incurring them in variable costing method where as they are incurred at the time of sale in absorption costing method.
Particulars
Cost
Absorption costing
Variable costing
Direct Material
$336,000
(12,000*$28)
$319,200
(11,400*$28)
$319,200
(11,400*$28)
Conversion Cost:
Direct Labour
$504,000
$478,800
(504,000*11,400/12,000)
$478,800
(504,000*11,400/12,000)
Variable Manufacturing Overhead
$420,000
$399,000
(420,000*11,400/12,000)
$399,000
(420,000*11,400/12,000)
Fixed Manufacturing Overhead***
$504,000
$478,800
(504,000*11,400/12,000)
$504,000
Selling and Administrative costs:
Variable cost
$360,000
(12,000*$30)
$342,000
(11,400*$30)
$342,000
(11,400*$30)
Fixed Cost
$358,100
$358,100
$358,100
Total Cost
$2,375,900
$2,401,100
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