CLIC manufactures two types of cigarette lighters: Basic and Super. A new plant began producing both lighter models this year. The following variable costing statement summarizes the first year of operations:

For internal control purposes, variable costing is used. Management also wants income from manufacturing calculated using absorption costing. Fixed overhead is allocated to the two lighters using actual machine minutes. Each Basic lighter requires 1.1 machine minutes and each Super lighter requires 1.2 machine minutes.

a. Calculate the fixed overhead rate per machine minute. b. Calculate the plant’s income from manufacturing for both Basic and Super lighters and for the entire plant using absorption costing.
c. Prepare a table that reconciles the difference in income from manufacturing reported using variable costing and absorption costing.
d. Explain in one or two sentences why income from manufacturing differs depending on whether variable costing or absorption costing isused.

  • CreatedDecember 15, 2014
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