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Chapter 21: Q1CA (page 1182)

Question: Communication Activity 21-1

In 100 words or fewer, explain the main differences and similarities between variable costing and absorption costing.

Short Answer

Expert verified

Answer

The main dissimilarity between variable and absorption costing is that one method considers the fixed manufacturing overhead, and the other is not.

Step by step solution

01

Meaning of Variable Costing 

Variable costing is a cost accounting technique that only considers the variable manufacturing overheads while calculating the cost of a product.

02

Main differences between variable costing and absorption costing

In absorption costing,all the manufacturing costs are charged to the cost of the product. While in variable costing, onlydirect costs incurred being the part of the cost of the product.

Absorption costing focuses on giving resultsof gross profit. Variable costingcalculatesthe contribution margin.

03

Similarities between variable costing and absorption costing

Variable and absorption costing techniques both help in calculating operating income. Both methods include material and labor costs as a direct cost.

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Most popular questions from this chapter

Question: Computing variable costing operating income Refer to the information for Concord, Inc.

Requirements:

  1. Using variable costing, calculate the unit product cost.
  2. Prepare an income statement using the contribution margin format.

Use the following information for Exercises E21-14 and E21-15.

Concord, Inc. has collected the following data for November (there are no beginning inventories):

Units produced and sold 500 units Sales price $ 450 per unit Direct materials 64 per unit Direct labor 68 per unit Variable manufacturing overhead 26 per unit Fixed manufacturing overhead 7,500 per month Variable selling and administrative costs 15 per unit Fixed selling and administrative costs 4,400 per month

When units produced are less than units sold, how does operating income differ between variable costing and absorption costing? Why

Question: Chaney Company provides lawn care services. Following are data for a recent week:

Service Revenue \(1,300

Variable Costs \)780

Contribution Margin $520 Chaney provided service to 25 customers during the week. Determine the average amount the company charged each customer, the variable cost per customer, and the contribution margin ratio.

Analyzing profitability

Camden Company has divided its business into segments based on sales territories: East Coast, Midland, and West Coast. Following are financial data for 2018:

East Coast

Midland

West Coast

Units sold

71

69

53

Sales price per unit

\(10,300

\)13,600

\(12,000

Variable cost per unit

6,283

7,072

7,080

Prepare an income statement for Camden Company for 2018 using the contribution margin format assuming total fixed costs for the company were \)435,000. Include columns for each business segment and a column for the total company.

Computing absorption cost per unit and variable cost per unit

Adamson, Inc. has the following cost data for Product X:

Direct materials $ 41 per unit Direct labor 57 per unit Variable manufacturing overhead 7 per unit Fixed manufacturing overhead 20,000 per year

Calculate the unit product cost using absorption costing and variable costing when production is 2,000 units, 2,500 units, and 5,000 units.

See all solutions

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