Absorption and Variable Costing: Cost of Goods Sold Bondware Inc., has a highly

Question

Absorption and Variable Costing: Cost of Goods Sold Bondware Inc., has a highly automated assembly line that uses very little direct labor. Therefore, direct labor is part of variable overhead. For March, assume that it incurred the following unit costs: Direct materials $500 Variable overhead 440 Fixed overhead 160 The 100 units of beginning inventory for March had an absorption costing value of $90,000 and a variable costing value of $76,000. For March, assume that Bondware Inc. produced 500 units and sold 540 units. Compute Bondware's March Cost of Goods Sold using both the variable and absorption costing Cost of Goods Sold Absorption costing Variable costing

Explanation / Answer

Cost of goods sold

Since you have not specified the inventory valuation method, I have solved the question by weighted average cost method as well as FIFO method to meet your requirment. Bondware Inc. Cost of goods sold under absorption costing WAC method Units produced 500 Amount in $ Per unit Direct Materials 250000 500 Variable overhead 220000 440 Fixed overhead 80000 160 Total cost of manufacturing 550000 1100 Add : Beginning inventory Units 100 90000 900 Total goods available for sale 600 640000 1066.67 Less : Ending Inventory units 60 64000 1066.67 Total cost of goods sold 540 576000 1066.67 Cost of goods sold under variable costing WAC method Units produced 500 Amount in $ Per unit Direct Materials 250000 500 Variable overhead 220000 440 Add : Beginning Inventory 100 76000 760 Goods available for sale 600 546000 910 Less : Ending Inventory 60 54600 910 540 491400 910 Add : Fixed overhead 540 80000 148.15 Total cost of goods sold 540 571400 1058.15 Bondware Inc. Cost of goods sold under absorption costing FIFO Method Units produced 500 Amount in $ Per unit Direct Materials 250000 500 Variable overhead 220000 440 Fixed overhead 80000 160 Total cost of manufacturing 550000 1100 Add : Beginning inventory Units 100 90000 900 Total goods available for sale 600 640000 1066.67 Less : Ending Inventory units 60 66000 1100.00 Total cost of goods sold 540 574000 1062.96 Cost of goods sold under variable costing FIFO Method Units produced 500 Amount in $ Per unit Direct Materials 250000 500 Variable overhead 220000 440 Add : Beginning Inventory 100 76000 760 Goods available for sale 600 546000 910 Less : Ending Inventory 60 56400 940

Cost of goods sold

540 489600 906.6666667

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