Computational Problems: Variable Costing & Absorption Costing 1. The following d
ID: 2536848 • Letter: C
Question
Computational Problems: Variable Costing & Absorption Costing
1. The following data relate to QQQ Company, a new corporation, during a period when the firm produced and
sold 100,000 units and 90,000 units, respectively:
Direct materials used
$400,000
Direct labor
200,000
Fixed manufacturing overhead
250,000
Variable manufacturing overhead
120,000
Fixed selling and administrative expenses
300,000
Variable selling and administrative expenses
45,000
The company met its original planned production target of 100,000 units. The selling price per unit was $15.
Required:
What is the cost of QQQ’s end-of-period finished-goods inventory under the variable-costing method?
Which costing method, absorption or variable costing, would show a higher operating income for the year? By
what amount?
Calculate the company's variable-costing net income.
Calculate the company's absorption-costing net income.
Reconcile (i.e., explain) the difference between net income under the two costing methods.
Direct materials used
$400,000
Direct labor
200,000
Fixed manufacturing overhead
250,000
Variable manufacturing overhead
120,000
Fixed selling and administrative expenses
300,000
Variable selling and administrative expenses
45,000
Explanation / Answer
unit product cost under variable & absorption costing variable Absorption Direct materials used 4 4 Direct labor 2 2 Variable manufacturing overhead 1.2 1.2 FMOH (250,000/100000)= 2.5 unit product cost under Variable costing 7.2 9.7 1) finished goods inventory under variable costing 10,000*7.2 72000 2) Absorption costing will show higher net income by 10,000*(250,000/100000) 25000 3) variable costing net income sales (90,000*15)= 1350000 less:Variable expenses cost of goods sold (90000*7.2) 648000 selling & Adm expense (90000*5) 45,000 693,000 Contribution margin 657,000 Fixed expenses fixed manufacturing overhead 250,000 fixed selling & adm expense 300,000 550,000 net income 107,000 4) Absorption costing net income sales 1350000 less:cost of goods sold (90000*9.7) 873000 gross margin 477000 selling expense variable selling & adm expense 45,000 fixed selling & adm expense 300,000 345,000 net income 132,000 5) Reconcilation net income under variable costing 107,000 Add:ending inventory deferred 25,000 net inccome under absorption costing 132,000
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