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Chapter 21: Q-21-10RQ (page 1167)
In the long run, all costs are controllable. Is this statement true? Why or why not?
Answer
True, all costs are controllable in the long run.
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Pierce Company had the following costs:
Units produced
500 units Manufacturing costs:
Direct materials
$ 25 per unit Direct labor
45 per unit Variable manufacturing overhead
15 per unit Fixed manufacturing overhead
5,000 per year Selling and administrative costs:
Variable selling and administrative costs
30 per unit Fixed selling and administrative costs
3,200 per year
Calculate the unit product cost using absorption costing and variable costing
Using variable and absorption costing, making decisions The 2018 data that follow pertain to Eli鈥檚 Electric Eyewear, a manufacturer of swimming goggles. (Eli鈥檚 Electric Eyewear had no beginning Finished Goods Inventory in January 2018.)
Number of goggles produced 245,000 Number of goggles sold 215,000 Sales price per unit \( 22Variable manufacturing cost per unit 8Sales commission cost per unit 5Fixed manufacturing overhead 1,470,000 Fixed selling and administrative costs 250,000 Requirements
1. Prepare both conventional (absorption costing) and contribution margin (variable costing) income statements for Eli鈥檚 Electric Eyewear for the year ended December 31, 2018.
2. Which statement shows the higher operating income? Why?
3. Eli鈥檚 ElectricEyewear鈥檚 marketing vice president believes a new sales promotion that costs \)60,000 would increase sales to 220,000 goggles. Should the company go ahead with the promotion? Give your reasoning.
Using variable and absorption costing, making decisions
The 2018 data that follow pertain to Mike鈥檚 Magnificent Eyewear, a manufacturer of swimming goggles. (Mike鈥檚 Magnificent Eyewear had no beginning Finished Goods Inventory in January 2018.)
Number of goggles produced 245,000
Number of goggles sold 230,000
Sales price per unit \( 28
Variable manufacturing cost per unit 10
Sales commission cost per unit 2
Fixed manufacturing overhead 1,960,000
Fixed selling and administrative costs 260,000
Requirements:
Comparing variable and absorption costing Refer to Exercises E21-16 and E21-17.
Requirements:
Explain why the fixed manufacturing overhead cost per unit changes when there is a change in the number of units produced.
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