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ACC - Exercise 2.44 Absorption vs Variable costing

Exercise 2.44 (ignore 2.40)

Activities Amounts
Units produced 120,000 units
Units sold 104,000 units
Direct material $780,000
Direct labor 450,000
Manufacturing overhead (unit, variable) 180,000
Manufacturing overhead (facility, fixed) 180,000
Selling and administrative (unit, variable) 140,000
Selling and administrative (facility, fixed) 120,000
Sales price per unit $22.00
Inventories, units Work-in-Process Finished goods
Beginning balance
Transfers in
Transfers out
Ending balance
a. Unit variable cost
Direct material used
Direct labor used
Manufacturing overhead (variable)
Total variable product costs
Divided by units produced
Unit variable cost
Manufacturing overhead (facility, fixed)
Divided by units produced
Fixed manufacturing cost per unit
Absorption cost per unit

b. Operating profit, variable costing
Sales revenue
Less: Variable expenses:
Variable manufacturing costs
Variable selling and administrative costs
Contribution margin
Less: Fixed expenses:
Fixed manufacturing overhead
Fixed selling and administrative expenses
Operating income

c. Operating profit, absorption costing
Sales revenue
Less: Cost of goods sold (at absorption cost)
Gross margin
Less: Selling and administrative expenses
Operating income

Operating income difference
Units placed in inventory
Multiply by fixed manufacturing cost per unit
Difference explained



Solution Summary

The process is shown by completing this in excel for you.