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    ACC - Exercise 2.44 Absorption vs Variable costing

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    Exercise 2.44 (ignore 2.40)

    2.44
    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
    Variable
    Fixed
    Operating income

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

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

    $2.19

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