Integration Exercise 7 Normal Costing versus Actual Costing [LO 2-1, LO 2-2, LO

Question

Integration Exercise 7 Normal Costing versus Actual Costing [LO 2-1, LO 2-2, LO 2-3, LO 3-3, LO 3-4, LO 6-1, LO 6-2]

Darwin Company manufactures only one product that it sells for $200 per unit. The company uses plantwide overhead cost allocation based on the number of units produced. It provided the following estimates at the beginning of the year:

During the year, the company had no beginning inventories of any kind and no ending raw materials or work in process inventories. All raw materials were used in production as direct materials. An unexpected business downturn caused annual sales to drop to 38,000 units. In response to the decline in sales, Darwin decreased its annual production to 40,000 units. The company’s actual costs for the year were as follows:

Required:

1. Assuming the company uses normal costing (as described in Chapters 2 and 3):
a. Compute the plantwide predetermined overhead rate.
b. Compute the unit product cost for each unit produced during the year.
c. Prepare a schedule of cost of goods manufactured and a schedule of cost of goods sold. Assume that any underapplied or overapplied overhead is closed entirely to cost of goods sold.
d. Compute absorption costing net operating income for the year.

2. Assuming the company uses actual costing (as described in Chapter 6):
a. Compute the unit product cost for each unit produced during the year.
b. Compute absorption costing net operating income for the year.

Just need 1c& 2a&2b

Number of units produced 50,000 Total fixed manufacturing overhead costs $ 1,000,000 Variable manufacturing overhead per unit produced $ 12

Explanation / Answer

1c Schedule of cost of goods manufactured Quantity manufactured=40,000 Per unit Total Direct material $78 $3,120,000 Direct Labor $60 $2,400,000 Variable manufacturing overhead $12 $480,000 Fixed manufacturing overhead applied $20.00 $800,000 (Overhead rate*Quantity produced=(1000000/50000)*40000 Underapplied overhead $5.00 $200,000 (1000000-800000) Cost of goods manufactured $175.00 $7,000,000 Schedule of cost of goods sold. Quantity sold=38,000 Per unit Total Direct material $78 $2,964,000 Direct Labor $60 $2,280,000 Variable manufacturing overhead $12 $456,000 Fixed manufacturing overhead $25.00 $950,000 Cost of goods sold $175.00 $6,650,000 2a Unit product cost for each unit produced during the year Unit product Cost for each unit produced $175 (7000000/40000) 2b Absorption Costing net operating income for the year Sales $        7,600,000 (200*38000) Cost of goods sold $6,650,000 Net Operating income for the year $            950,000

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