This year, Paintbrush, Inc., manufactured 55,000 units of part YS15, and it sold 50,000 units at $60 per unit. The beginning inventory balance was 1,000 units. No changes in fixed or variable costs occurred during the year. Previous sales had averaged 44,000 units, therefore, the management had set that amount as the normal capacity for allocating fixed overhead costs. For simplicity, assume that the budgeted fixed production overhead cost equals the actual cost this period. Also, assume that the company uses the FIFO cost flow assumption. The following costs were incurred during the year:

 

Required:

A. Prepare income statements using absorption costing, variable costing, and throughput costing. Provide the details of your calculations in a schedule for each income statement.

B. Reconcile the difference between operating incomes based on absorption costing and variable costing. Create a schedule to show your work.

C. Reconcile the difference between operating incomes based on variable costing and throughput costing. Create a schedule to show your work.

D. Suppose the accountant for Paintbrush, Inc. used an actual fixed overhead allocation rate rather than an estimated rate. Using this method, calculate the cost of goods sold and ending inventory under absorption costing. Compare the results to those calculated in Part A.

E. If the volume variance is not material, how is it closed at the end of the period? Explain the reasoning behind this treatment.

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Variable Cost Per Unit: $13.00 Direct materials $ 2.00 $ 2.50 Direct labour Manufacturing overhead $ 0.50 Selling and administrative Total Fixed Costs: $440,000 Production overhead Selling and administrative $275,000