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Chapter 21: Q-21-2T1 (page 1152)

Hayden Company has 50 units in Finished Goods Inventory at the beginning of the accounting period. During the accounting period, Hayden produced 150 units and sold 200 units for \(150 each. All units incurred \)80 in variable manufacturing costs and \(20 in fixed manufacturing costs. Hayden also incurred \)7,500 in Selling and Administrative Costs, all fixed. Calculate the operating income for the year using absorption costing and variable costing.

Short Answer

Expert verified

Answer

The operating income is $2,500 under absorption costing and variable costing.

Step by step solution

01

Income statement using absorption costing

Particulars

Amount

Net sales revenue ($150*200)

$30,000

Less: Cost of goods sold ($100*200)

$20,000

Gross profit

$10,000

Less: Selling and administrative cost

$7,500

Operating Income

$2,500

02

Income statement using variable costing

Particulars

Amount

Net sales revenue ($150*200)

$30,000

Less: Variable costs ($80*200)

$16,000

Contribution margin

$14,000

Less: Fixed costs

Fixed costs of goods sold($20*200)

$4,000

Fixed selling and administrative cost

$7,500

Operating Income

$2,500

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Most popular questions from this chapter

When units produced equal units sold, how does operating income differ between variable costing and absorption costing?

Computing inventory balances

Zeng Company reports the following data:

Finished Goods Inventory:

Beginning balance, in units 300 Units

Produced 2,900

Units sold (1,600)

Ending balance, in units 1,600

Production Costs: Variable manufacturing costs per unit $ 57

Total fixed manufacturing costs 26,100

Calculate the product cost per unit and the total cost of the 1,600 units in ending inventory using absorption costing and variable costing.

Setting sales prices The Sweet Treats Company manufactures candy that is sold to food distributors. The company produces at full capacity for six months each year to meet peak demand during the 鈥渃andy season鈥� from Halloween through Valentine鈥檚 Day. During the other six months of the year, the manufacturing facility operates at 75% of capacity. The Sweet Treats Company provides the following data for the year:

Cases of candy produced and sold 1,800,000 cases Sales price $ 37.00 per case Variable manufacturing costs 20.00 per case Fixed manufacturing costs 6,400,000 per year Variable selling and administrative costs 2.00 per case Fixed selling and administrative costs 3,500,000 per year The Sweet Treats Company receives an offer to produce 13,000 cases of candy for a special event. This is a one-time opportunity during a period when the company has excess capacity. What is the minimum sales price The Sweet Treats Company should accept for the order? Explain why

Question: Preparing absorption costing income statements, production less than sales

Refer to Exercise E21-19.

Requirements

  1. Prepare the May income statement using absorption costing.
  2. Is operating income using absorption costing higher or lower than variable costing income? Explain why.
  3. Determine the balance in Finished Goods Inventory as of May 31.

Classifying costs Classify each cost by placing an X in the appropriate columns. The first cost is completed as an example.

Absorption Costing Variable Costing Product Cost Period Cost Product Cost Period cost

  1. Direct materials
  2. Direct labor
  3. Variable manufacturing overhead
  4. Fixed manufacturing overhead
  5. Variable selling and administrative costs
  6. Fixed selling and administrative cost
See all solutions

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