Blueprint Problem: Absorption Costing and Variable Costing Absorption Costing ve
ID: 2725015 • Letter: B
Question
Blueprint Problem: Absorption Costing and Variable Costing
Absorption Costing versus Variable Costing
The cost of manufactured products consists of direct materials, direct labor, and factory overhead. The reporting of all these costs in financial statements is called absorption costing. Absorption costing is required under generally accepted accounting principles for financial statements distributed to external users. However, alternative reports may be prepared for decision-making purposes by managers and other internal users. One such alternative reporting is variable costing or direct costing.
In variable costing, the cost of goods manufactured is composed only of variable costs. Thus, the cost of goods manufactured consists of direct materials, direct labor, and variable factory overhead. In a variable costing income statement, fixed factory overhead costs do not become a part of the cost of goods manufactured. Instead, fixed factory overhead costs are treated as period expenses.
The primary difference between absorption and variable costing is that absorption costing considers fixed overhead a Selectfixed costperiod costproduct costnonrelevant costCorrect 1 of Item 1 and variable costing considers fixed overhead a Selectfixed costperiod costproduct costnonrelevant costCorrect 2 of Item 1 . The only item that is a period cost for both costing methods is Selectdirect labordirect materialsfixed overheadselling and administrative expensesvariable overheadCorrect 3 of Item 1 .
Hide Feedback
Correct
Check My Work Feedback
Hover each of the underlined terms with your mouse to understand the relationship between absorption and variable costing.
Determining Costs under Absorption and Variable Costing
Kalis Company began its operations in the current year. It manufactures and sells only one product. During the year, Kalis produced 223,125 units and sold 180,625 units at $500 each.
At the beginning of the year, Kalis estimated that it would produce 233,750 units.
Determine the unit cost for Kalis under both absorption and variable costing.
Because fixed overhead allocation is based on a predetermined rate, which is set during planning at the beginning of the period, the amount to be allocated per unit will be based on SelectactualplannedunknownCorrect 1 of Item 2 production, but only in the case of fixed overhead being classified as a SelectperiodproductCorrect 2 of Item 2 cost.
If an amount is zero, enter "0".
The difference between unit costs under absorption costing and variable costing is the classification of what cost? SelectDirect laborDirect materialsFixed overheadSelling and administrativeVariable overheadCorrect 13 of Item 2
Under absorption costing, this cost is classified as a SelectproductperiodCorrect 14 of Item 2 cost.
Hide Feedback
Correct
Check My Work Feedback
Based on the absorption costing and variable costing definitions from the previous section, determine which of unit costs should be carried down for each case. Sum them up to arrive at the total unit cost.
How many units did Kalis have in ending inventory? units
What is the value of Kalis's ending inventory under absorption costing? $
What is the value of Kalis's ending inventory under variable costing? $
Hide Feedback
Correct
Check My Work Feedback
Assume that this company had no beginning inventory, so everything that they produced that was NOT sold will become its ending inventory.
Based on the unit costs you calculated in the previous section, determine the total cost of ending inventory based both absorption and variable costing.
APPLY THE CONCEPTS: Construct the absorption-costing and variable-costing income statements
Using the data from above, complete the following income statements.
Kalis Company
Absorption-Costing Income Statement
Sales
$
Gross margin
$
Operating income
$
Hide Feedback
Partially Correct
Check My Work Feedback
The Absorption Costing Income Statement is the traditional statement format. Both fixed and variable product costs are included in the cost of goods sold based on your earlier calculation.
Kalis
Variable-Costing Income Statement
Sales
$
Less variable expenses:
$
Variable selling and administrative expenses
$ 0
Gross margin
$
Less fixed expenses:
$
Operating income
$
Variable Costs Direct materials $80 Direct labor 60 Variable overhead 20Explanation / Answer
Solution:
Absorption costing Sales 180625*500 90312500 Variable manufacturing cost (223125*140) 31237500 Variable overhead 223125*20 4462500 Fixed manaufacturing cost 0 Fixed overhead 9350000 Gross profit = sales - variable cost 45262500 Variable selling and administrative 0 Fixed selling and administrative 11687500 Net income = gross profit - other cost 33575000 Variable costing Sales 180625*500 90312500 Variable cost 180625*160 28900000 Contribution = sales - variable cost 61412500 Fixed expense 21037500 Net income 40375000Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.