Carlita\'s Foods produces frozen meals that it sells for $6 each. The company co
ID: 2564212 • Letter: C
Question
Carlita's Foods produces frozen meals that it sells for $6 each. The company computes a new monthly fixed manufacturing overhead rate based on the planned number of meals to be produced that month. All costs and production levels are exactly as planned. The following data are from Clarita's Foods' first month in business:
January 2011
Sales 1,150 Meals
Production 1,350 meals
Variable manufacturing cost per meal $2
Sales commission cost per meal $1
Total fixed manufacturing overhead $540
Total fixed marketing and administrative costs $350
Requirements
1.
Identify the costs as part of total product costs under absorption costing, variable costing, or both. Indicate A for absorption costing, V for variable costing, B for both, or N for neither.
2.
Compute the product cost per meal produced under absorption costing and under variable costing.
3.
Prepare income statements for January 2011 using
a.
absorption costing.
b.
variable costing.
4.
Is operating income higher under absorption costing or variable costing in January? Give two reasons why.
1.
Identify the costs as part of total product costs under absorption costing, variable costing, or both. Indicate A for absorption costing, V for variable costing, B for both, or N for neither.
2.
Compute the product cost per meal produced under absorption costing and under variable costing.
3.
Prepare income statements for January 2011 using
a.
absorption costing.
b.
variable costing.
4.
Is operating income higher under absorption costing or variable costing in January? Give two reasons why.
Explanation / Answer
1. classification :
2. The product cost per meal produced under :
absorption costing is VC + FMC = $2 + ($540 / 1350) = $2 + $0.40 = $2.40 per meal and
variable costing is VC ie. $2.
3. Income statement for January 2011:
a) Using absorption costing :
b) Using Variable costing :
4. Operating income is higher under absorption costing than that of variable costing in January because
a) Part of Fixed manufacturing costs transferred to Closing Stock under absorption costing.
b) The meals sold is less than the meals produced.
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Cost Absorption costing Variable Costing Variable Manufacturing Costs V V Sales commission costs V V Fixed Manufacturing costs V F Fixed Marketing and Administrative costs F F