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Difference between absorption costing and variable costing
Course:- Managerial Accounting
Reference No.:- EM132231824




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Question 1
What is the basic difference between absorption costing and variable costing?

Question 2
Refined Elegance Corp. makes a desk specially designed for personal computers. The desk sells for $200.

Data for last year's operations follow:

Units in beginning inventory

0

Units produced

10,000

Units sold

9,000

Units in ending inventory

1,000

Variable costs per unit

 

Direct materials 

$40

Direct labour

35

Variable manufacturing overhead 

10

Variable selling and administrative

25

Total variable cost per unit 

$110

Fixed costs

 

Fixed manufacturing overhead  

$300,000

Fixed selling and administrative

450,000

Total fixed costs  

$750,000

Assume that the company uses variable costing. Compute the unit product cost for one computer desk.

Assume that the company uses variable costing. Prepare a contribution format income statement for the year.

What is the company's break-even point in terms of units sold?

Question 3
Refer to the data in the previous question for Refined Elegance Corp. Assume in this exercise that the company uses absorption costing.
Compute the unit product cost for one computer desk.

Prepare an income statement for the year.

Question 4
The following information pertains to Death Star Corporation for a period

Selling price per unit

$41

Standard fixed manufacturing costs per unit

$20

Variable selling and administrative costs per unit

$4

Fixed selling and administrative cost per unit

$16,000

Beginning inventories:

 

          Units

?

          Standard fixed manufacturing cost

$40,000

          Standard variable manufacturing cost

$20,000

          Units produced

10,000

          Units sold

9,600

Assume the unit standard costs data for the beginning and ending inventories remained constant during the period. What was the total standard cost of the ending inventory under absorption costing?

Question 5

Algonquin Outfitters Corporation, which has only one product, has provided the following data concerning its most recent month of operations:

Selling price

$111

 

 

Units in beginning inventory

400

Units produced

8,800

Units sold

8,900

 

 

Variable costs per unit

 

          Direct materials

$34

          Direct labour

$37

          Variable manufacturing overhead

$3

          Variable selling and administrative

$9

 

 

Fixed costs

 

          Fixed manufacturing overhead

$61,600

          Fixed selling and administrative

$169,100

The company produces the same number of units every month, although the sales in units vary from month to month. The company's variable costs per unit and total fixed costs have been constant from month to month.

Compute the total Contribution Margin.

Compute the Operating Income under Variable Costing.

Prepare a reconciliation from your Variable Costing Operating Income to compute Operating Income under absorption costing.

Answered:-

Verified Expert

In the given assignment we were required to solve the questions based on variable costing and absorption costing method to determine the cost per unit, contribution margin and break-even sales of the commodities.



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