Problem:
(Standard costing; variable and absorption costing) Gramps' Remedy manufactures athletes' foot powder. The company uses a standard costing system. Following are data pertaining to the company's operations for 1999:
|
Production for the year
|
180,000 units
|
|
Sales for the year (sales price per unit, $1.25)
|
195,000 units
|
|
Beginning 1999 inventory
|
35,000 units
|
|
STANDARD COSTS TO PRODUCE 1 UNIT
|
|
Direct material
|
$0.15
|
|
Direct labor
|
0.10
|
|
Variable overhead
|
0.05
|
|
Fixed overhead
|
0.15
|
|
SELLING AND ADMINISTRATIVE COSTS
|
|
Variable (per unit sold)
|
$0.14
|
|
Fixed (per year)
|
$120,000
|
Fixed manufacturing overhead is assigned to units of production based on a predetermined rate using a normal production capacity of 200,000 units per year.
a. What is the estimated annual fixed manufacturing overhead?
b. If estimated fixed overhead is equal to actual fixed overhead, what is the amount of under- or overapplied overhead in 1999 under absorption costing? Under variable costing? c. What is the product cost per unit under absorption costing? Under variable costing?
d. How much expense will be charged against revenues in 1999 under absorption costing? Under variable costing?
e. Will pretax income be higher under absorption or variable costing? By what amount?