Question

Auden Manufacturing produces a single product with the following standards:
Standard direct labor cost per unit.......... $ 2.00
Standard direct materials per unit .......... $ 3.00
Flexible overhead budget........... $ 60,000 + $ 4 per direct labor dollar
Normal production.............. 10,000 units

FIFO inventory costing is used. Normal volume is used as budgeted volume. Actual production, sales, and costs for the year were as follows:
Sales..................... 11,000 units @ $ 20 per unit
Production ................... 9,000 units
Beginning inventory (composed of $ 5
variable cost per unit and $ 14 fixed costs per unit).... 2,000 units @ $ 38,000
Direct labor cost of units produced......... $ 18,000
Direct materials cost of units produced....... $ 27,000
Total overhead incurred (composed of $ 60,000
fixed and $ 75,000 variable overhead) ........ $ 135,000

Required:
a. Compute the overhead rate used to apply overhead to the product.
b. Calculate all variances.
c. Calculate net income under absorption costing. (All variances are taken to cost of goods sold.)
d. Calculate net income under variable costing. (All variances are taken to cost of goods sold.)
e. Reconcile the difference in income between variable costing and absorption costing.



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  • CreatedDecember 15, 2014
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