Refer to the information for Vestibule in PB5-4. Additional information for Vestibules most recent year of operations
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.
Step by Step Answer:
Managerial Accounting
ISBN: 978-0078025518
2nd edition
Authors: Stacey Whitecotton, Robert Libby, Fred Phillips