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    13-45 Variable and Absorption Costing for Chan Manufacturing

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    Chan Manufacturing Company data for 20X7 follow:

    Sales: 12,000 units at $17 each
    Actual production 15,000 units
    Expected volume of production 18,000 units
    Manufacturing costs incurred
    Variable $120,000
    Fixed 63,000
    Nonmanufacturing costs incurred
    Variable $ 24,000
    Fixed 18,000

    1. Determine operating income for 20X7, assuming the firm uses the variable-costing approach to
    product costing. (Do not prepare a statement.)

    2. Assume that there is no January 1, 20X7, inventory; no variances are allocated to inventory; and
    the firm uses a "full absorption" approach to product costing. Compute (a) the cost assigned to
    December 31, 20X7, inventory; and (b) operating income for the year ended December 31, 20X7.
    (Do not prepare a statement.)

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    Solution Summary

    This solution determines the operating income using the variable-costing approach to product costing. This solution also computes the cost assigned to the inventory and operating income using the "full absorption" approach to product costing.