Problems

Problem $8-32$

Straightforward Problem on Absorption versus Variable Costing $($L$08-2,8-3,8-4)$

$2($a$).$ Operating income: $$200,000$

$3.$ Cost of goods sold under absorption costing: $$1,500,000$

All applicable Problems are available in Connect.

Skinny Dippers Inc. produces nonfat frozen yogurt. The product is sold in five$-$gallon containers, which have the following price and variable costs.

Sales price

Direct material

Direct labor

Variable overhead

$$15$

$5$

$2$

$3$

Budgeted fixed overhead in $20$x$1,$ the company's first year of operations, was $$300,000.$ Actual production was $150,000$ five$-$gallon containers, of which $125,000$ were sold. Skinny Dippers Inc. incurred the following selling and administrative expenses.

Fixed

$$50,000$ for the year

Variable

$$1$ per container sold

Required:

Compute the product cost per container of frozen yogurt under $($a$)$ variable costing and $($b$)$ absorption costing.

Prepare operating income statements for $201$ using $($a$)$ absorption costing and $($b$)$ variable costing.

Reconcile the operating income reported under the two methods by listing the two key places where the income statements differ.

Reconcile the operating income reported under the two methods using the shortcut method.

Build a spreadsheet: Construct an Excel spreadsheet to solve all of the preceding requirements. Show how the solution will change if the following information changes: the selling price and direct$-$material cost per unit are $$16\mathrm{.}00$ and $$4\mathrm{.}50,$ respectively.