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Chan Manufacturing Company

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. (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.)

Solution Preview

Variable and Absorption Costing
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 ...

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