Question

Refer to the information for Presidio, Inc., in PA5-4. Additional information for Presidio’s most recent year of operations follows:
Number of units produced .................... 2,000
Number of units sold ...................... 1,300
Sales price per unit ...................... $650.00
Direct materials per unit ................... 60.00
Direct labor per unit ...................... 90.00
Variable manufacturing overhead per unit ............. 40.00
Fixed manufacturing overhead per unit ($235,000 / 2,000 units) ... 117.50
Total variable selling expenses ($10 per unit sold) ........ 13,000.00
Total fixed general and administrative expenses ......... 70,000.00

Required:
1. Without any calculations, explain whether Presidio’s profit will be higher with full absorption costing or variable costing.
2. Prepare a full absorption costing income statement and a variable costing income statement for Presidio. Assume there was no beginning inventory.
3. Compute the difference in profit between full absorption costing and variable costing. Reconcile the difference.



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  • CreatedFebruary 27, 2015
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