Absorption and Variable Costing with Over- and Underapplied OverheadFlaherty, Inc., has just completed its first year of operations. The unit costs on a normal costing basis are as follows: Manufacturing costs (per unit): Direct Materials (4 lbs. @ $1.50) $6.00 Direct Labor (0.5 hr. @ $18) 9.00 Variable Overhead (0.5 hr. @ $6) 3.00 Fixed Overhead (0.5 hr. @ $9) 4.50 TOTAL $22.50 Selling and Administrative costs: Variable $2 per unit Fixed $238,000During the year, the company had the following activity: Units Produced 24,000 Units Sold 21,300 Unit Selling Price $36 Direct Labor Hours Worked 12,000 Actual fixed overhead was $12,000 less than budgeted fixed overhead. Budgeted variable overhead was $5,000 less than the actual variable overhead. The company used an expected actual activity level of 12,000 direct labor hours to compute the predetermined overhead rates. Any overhead variances are closed to Cost of Goods Sold.Required:1.Compute the unit cost using (a) absorption costing and (b) variable costing. Round your answers to the nearest cent.Unit CostAbsorption costing$Variable costing$Hide Feedback Correct Check My Work FeedbackThe unit cost under absorption costing includes one more cost than under variable costing.The unit cost under variable costing includes one less cost than under absorption costing.Hide2.Prepare an absorption-costing income statement. Flaherty, Inc. Absorption-Costing Income Statement For the First Year of Operations $ Less: $ Gross profit $ Operating income $ Hide Feedback Partially Correct Check My Work FeedbackAbsorption costing assigns all manufacturing costs to each unit produced.Hide3.Prepare a variable-costing income statement. Flaherty, Inc. Variable-Costing Income Statement For the First Year of Operations $ Less: $ Contribution margin $ Less: $ $ Operating income $ Hide Feedback Partially Correct Check My Work FeedbackUse a contribution margin format income statement that groups costs according to behavior (variable and fixed)4.Reconcile the difference between the two income statements.The absorption costing generates an income $- Select your answer -higherlowerCorrect 2 of Item 4 than variable costing.Hide Feedback Partially Correct Check My Work FeedbackIA – IV = Fixed overhead rate × (Production – Sales)

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