costs of production are as follows:

Direct material
……………………………………………………………………………………………………………………….
$40

Direct labor
…………………………………………………………………………………………………………………………..
22

Variable manufacturing overhead
………………………………………………………………………………………………..
16

Budgeted fixed overhead in 20×4 was $400,000 and budgeted
production was 25,000 sleeping bags. The year’s actual production was 25,000
units, of which 22,000 were sold. Variable selling and administrative costs
were $2 per unit sold; fixed selling and administrative costs were $60,000.

Required:

1. Calculate the product cost per sleeping bag under ( a )
absorption costing and ( b ) variable costing.

2. Prepare income statements for the year using ( a )
absorption costing and ( b ) variable costing.

3. Reconcile reported income under the two methods using the
shortcut method.

4. Suppose that Great Outdoze, Inc. implemented a JIT
inventory and production management system at the beginning of 20×4. In
addition, the firm installed a flexible manufacturing system. Would you expect
reported income under variable and absorption costing to be different by as
great a magnitude as you found in requirement (3)? Explain.

Refer to the information given in the preceding problem for
Great Outdoze, Inc. Assume that direct material is the only unit-level
manufacturing cost. The company has committed its spending for direct labor and
overhead (variable and fixed).

Required:

1. Calculate the product cost per sleeping bag under
throughput costing.

2. Prepare an income statement for the year 20×4 using
throughput costing.

3. Give an argument for and against throughput costing.

ScholarMatic: Explanation & Answer

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