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    Chan Manufacturing Company

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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.

    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

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    Solution Preview

    Variable and Absorption Costing
    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.
    Variable costing

    Variable (120,000/15,000 units) $8

    Sales (12,000 units x $17) $204,000
    Total Variable ...

    Solution Summary

    This solution is comprised of a detailed explanation to determine operating income for 20X7, assuming the firm uses the variable-costing approach to product costing.

    $2.19

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