Herb Garden manufactures garden planters for growing fresh herbs to use in cooking. Individuals as well as local restaurants purchase the planters. Recently, the company incurred the following costs:
Variable Cost per Planter
Direct materials ................ $ 8.50
Direct labor ................. 2.40
Variable manufacturing overhead ......... 1.50
Variable selling and administrative expenses .... 0.65

Fixed Cost per Month
Fixed manufacturing overhead ........... $12,125
Fixed selling and administrative expenses ...... 8,640

Herb Garden charges $17 for each planter that it sells. During the first month of operation, it made 6,500 planters and sold 6,225.

1. Assuming Herb Garden uses variable costing; calculate the variable manufacturing cost per unit for last month.
2. Prepare a variable costing income statement for last month.
3. Assuming Herb Garden uses full absorption costing; calculate the full manufacturing cost per unit for last month.
4. Prepare a full absorption costing income statement.
5. Compare the two income statements and explain any differences.
6. Suppose next month Herb Garden expects to produce 6,000 planters and sell 6,200 of them. Without any calculations, explain whether variable or absorption costing will show a higher profit.

  • CreatedFebruary 27, 2015
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