Ogilvy Company manufactures and sells one product. The following information per
ID: 2529170 • Letter: O
Question
Ogilvy Company manufactures and sells one product. The following information pertains to each of the company’s first three years of operations:
The company does not incur any variable manufacturing overhead costs or variable selling and administrative expenses. During its first year of operations, Ogilvy produced 74,000 units and sold 74,000 units. During its second year of operations, it produced 74,000 units and sold 69,400 units. In its third year, Ogilvy produced 74,000 units and sold 78,600 units. The selling price of the company’s product is $69 per unit.
Required:
1. Assume the company uses super-variable costing:
a. Compute the unit product cost for Year 1, Year 2, and Year 3.
b. Prepare an income statement for Year 1, Year 2, and Year 3.
2. Assume the company uses a variable costing system that assigns $23 of direct labor cost to each unit produced:
a. Compute the unit product cost for Year 1, Year 2, and Year 3.
b. Prepare an income statement for Year 1, Year 2, and Year 3.
3. Reconcile the difference between the super-variable costing and variable costing net operating incomes in Years 1, 2, and 3.
Variable cost per unit: Direct materials $ 30 Fixed costs per year: Direct labor $ 1,702,000 Fixed manufacturing overhead $ 836,000 Fixed selling and administrative expenses $ 290,000Explanation / Answer
All other indirect cost are charged to expense in the year in which it is incurred
The difference in net operating income under the two approach is due to the absorption of labour cost as variable cost based on units sold.
Under super costing, Only direct variable costs are included in product costRelated Questions
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