Question

Refer to the information for Vestibule in PB5-4. Additional information for Vestibule’s most recent year of operations follows:
Number of units produced ..................... 3,000
Number of units sold ..................... 2,800
Sales price per unit ..................... $30.00
Direct materials per unit .................. 3.00
Direct labor per unit ..................... 2.00
Variable manufacturing overhead per unit ............ 1.50
Fixed manufacturing overhead per unit ($15,000 / 3,000 units) .... 5.00
Total variable selling expenses ($1 per unit sold) ......... 2,800.00
Total fixed general and administrative expenses ........ 20,250.00

Required:
1. Without any calculations, explain whether Vestibule’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 Vestibule. 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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