Problem 1: Comparison of Variable Costing and Absorption Costing
Consider the following information pertaining to a year's operations of Youngstown Manufacturing:
| Units sold |
1,400 |
| Units produced |
1,600 |
| Direct labor |
$4,200 |
| Direct materials used |
3,500 |
| Fixed manufacturing overhead |
2,200 |
| Variable manufacturing overhead |
300 |
| Selling and administrative expenses (all fixed) |
700 |
| Beginning inventories |
0 |
| Contribution margin |
5,600 |
| Direct-material inventory, end |
800 |
There are no work-in-process inventories.
1. What is the ending finished-goods inventory cost under absorption costing?
2. What is the ending finished-goods inventory cost under variable costing?
Problem 2: Variable and Absorpton Costing
Chan Manufacturing Company data for 20X7 follow:
| Sales: 12,000 units at $17 each |
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| Actual production |
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15,000 |
units |
| Expected volume of production |
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18,000 |
units |
| Manufacturing costs incurred |
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| Variable |
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$120,000 |
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| Fixed |
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63,000 |
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| Nonmanufacturing costs incurred |
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| Variable |
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$24,000 |
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| Fixed |
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18,000 |
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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. Compu
Compute:
(a) the cost assigned to December 31, 20X7, inventory; and
(b) operating income fo rthe year ended December 31, 20X7.
(Do not prepare a statement.)
Problem 3: Decision Guideline
Dallas Cleaning
Cost Allocations from Service Departments to Producing Departments
Today's Date
|
Personnel |
Administrative |
Residential |
Commercial |
Total Res/Comm |
Total Admin/Res/Comm |
Grand Total |
| Direct Department Costs |
$ 70,000 |
$ 90,000 |
$ 240,000 |
$ 400,000 |
$ 640,000 |
$ 970,000 |
$ 1,610,000 |
| Number of Employees |
6 |
10 |
36 |
24 |
60 |
106 |
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| Direct Method: |
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| Direct Department Costs |
$ 70,000 |
$ 90,000 |
$ 240,000 |
$ 400,000 |
$ 640,000 |
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| Personnel Allocation |
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| Administrative Allocation |
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| Total Costs |
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| Step-down Method: |
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| Direct Department Costs |
$ 70,000 |
$ 90,000 |
$ 240,000 |
$ 400,000 |
$ 640,000 |
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| Step 1-Personnel Allocation |
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| Step 2-Administrative Allocation |
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| Total Costs |
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Step by Step Instructions on the above worksheet
When you have completed your spreadsheet, answer the following questions:
1. What are the total costs for the Residential department using the direct method?
2. What are the total costs for the Residential department using the step-down method?
3. What are the total costs for the Commercial department using the step-down method?
4. Which method would you recommend that Antonio Cleaning use to allocate their service departments’ costs to their producing departments? Why? Step-by-Step:
5. What are the total costs for the Commercial department using the direct method?