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  • Variable (Direct) Costing

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    Mela carlon
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    The document shows production information for Kern Company including units produced and sold, direct materials and labor costs, fixed and variable factory overhead costs, fixed and variable selling and administrative expenses, and beginning finished goods inventory. Variable costing would show Kern's finished goods inventory cost at December 31 as $7,200. Absorption costing would be $2,500 higher at $9,700. For Peter Company, variable costing would show its finished goods inventory at December 31 as $90,000, and absorption costing would show its operating income for the year as $352,000.

    Original Description:

    Accounting activity 2

    Original Title

    ACTIVITY

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    The document shows production information for Kern Company including units produced and sold, direct materials and labor costs, fixed and variable factory overhead costs, fixed and variable selling and administrative expenses, and beginning finished goods inventory. Variable costing would show Kern's finished goods inventory cost at December 31 as $7,200. Absorption costing would be $2,500 higher at $9,700. For Peter Company, variable costing would show its finished goods inventory at December 31 as $90,000, and absorption costing would show its operating income for the year as $352,000.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
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    Download as docx, pdf, or txt
    1K views3 pages

    Variable (Direct) Costing

    Uploaded by

    Mela carlon
    The document shows production information for Kern Company including units produced and sold, direct materials and labor costs, fixed and variable factory overhead costs, fixed and variable selling and administrative expenses, and beginning finished goods inventory. Variable costing would show Kern's finished goods inventory cost at December 31 as $7,200. Absorption costing would be $2,500 higher at $9,700. For Peter Company, variable costing would show its finished goods inventory at December 31 as $90,000, and absorption costing would show its operating income for the year as $352,000.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as docx, pdf, or txt
    of 3

    Units Produced 10,000

    Units Sold 9,000


    Direct Materials Used 40,000
    Direct Labor 20,000
    Fixed Factory Overhead 25,000
    Variable Factory Overhead 12,000
    Fixed Selling and Administrative Expenses 30,000
    Variable Selling and Administrative Expenses 4,500
    Finished Goods Inventory, Beginning 0

    4. What would be Kern’s finished goods inventory cost at December 31,20cy under variable costing?

    Solution:

    Variable (Direct) Costing

    Direct Materials Used 40,000


    Direct Labor 20,000
    Variable Factory Overhead 12,000 72,000
    Units Produced 10,000
    Variable Production Costs per 7.2
    Unit
    Multiply: Inventory, ending 1,000
    (10,000-9,000)
    Finished Goods Inventory Cost 7,200
    – Direct Costing
    A.)7,200

    5. Which Costing method, absorption or variable, would show higher operating income by what
    amount?

    Solution:

    Full (Absorption) Costing

    Direct Materials Used 40,000


    Direct Labor 20,000
    Variable Factory Overhead 12,000
    Fixed Factory Overhead 25,000 97,000
    Units Produced 10,000
    Variable Production Costs per 9.7
    Unit
    Multiply: Inventory, ending 1,000
    (10,000-9,000)
    Finished Goods Inventory Cost 9,700
    – Direct Costing
    A. ABSORPTION COSTING 2,500
    6. What would be Peter’s finished goods inventory cost at December 31,20CY, under the variable (direct)
    costing system?

    Solution:

    Variable (Direct) Costing

    Cost of Goods Manufactured 630,000


    Variable
    Units Manufactured 70,000
    Variable Production Cost per 9
    Unit
    Inventory, ending (70,000- 10,000
    60,000)
    Finished Goods Inventory Cost 90,000
    – Direct Costing
    B.) 90,000

    7. Under the absorption costing method, Peter’s operating income for 20CY, would be?

    Solution:

    Full (Absorption) Costing

    Cost of Goods Manufactured 630,000


    Variable
    Cost of Goods Manufactured 315,000 945,000
    Fixed
    Units Manufactured 70,000
    Variable Production Cost per 13.5
    Unit
    Inventory, ending (70,000- 10,000
    60,000)
    Finished Goods Inventory Cost 135,000
    – Absorption Costing

    Peter Company

    Income Statement

    For the Year Ended December 31,20CY

    (Absorption Costing)

    Sales 1,400,000
    Cost of Sales:
    Production Costs:
    Variable 630,000
    Fixed 315,000
    Total Production Costs 945,000
    Inventory, end 135,000 810,000
    (945,0000/70,000) *10000
    Gross Margin 590,000
    Selling and Administrative
    Expenses:
    Variable Selling and 98,000
    Administrative
    Fixed Selling and 140,000 238,000
    Administrative
    Net Income 352,000
    C. 352,000

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