Wild Bird Feeders produces deluxe bird feeders for distribution to catalog companies and wild bird stores. The company uses an absorption costing system for internal reporting purposes, but is considering using variable costing. Data regarding Wild Bird’s planned and actual operations for this year are presented here.

The planned per-unit cost figures shown in the schedule were based on production and sale of 140,000 units. Wild Bird uses an estimated manufacturing overhead rate for allocating manufacturing overhead to its product; thus, a combined manufacturing overhead rate of $9 per unit was employed for absorption costing purposes. Any over-applied or under-applied manufacturing over-head is closed to cost of goods sold at the end of the reporting year.

The beginning finished goods inventory for absorption costing purposes was valued at last year's planned unit manufacturing cost, which was the same as the this year's planned unit manufacturing cost. No work in process inventories were recorded either at the beginning or end of the year. The planned and actual unit selling price was $99.00 per unit. You may want to use a spreadsheet to perform calculations.

A. What was the value of Wild Bird’s actual ending finished goods inventory on the absorption costing basis?
B. What was the actual ending finished goods inventory on the variable costing basis?
C. What were the manufacturing contribution margin and the total contribution margin under variable costing for Wild Bird’s actual results?
D. Under absorption costing, what were the total fixed costs on the income statement?
1. What were the fixed selling and administrative costs?
2. What was the amount of overhead allocated to COGS at standard?
3. Do we need to consider sales of units from last period?
4. What was the amount of under-applied or over-applied overhead closed to COGS?
5. Sum these amounts for the total fixed costs.
E. What was the total variable cost expensed on the variable costing income statement?
F. Was absorption costing income higher or lower than variable costing income? Why?
G. What is the amount of difference in income using absorption costing versus variable costing? How did itarise?

  • CreatedJanuary 26, 2015
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