Question

Last year, Phillips Company produced 300,000 units and sold 280,000 units. Beginning inventory was zero. During the period, the following costs were incurred: Indirect labor (variable) $900,000 Indirect materials (variable) 600,000 Other variable manufacturing overhead 1,500,000 Fixed manufacturing overhead 2,400,000 Fored administrative expenses 300,000 Fixed ng expenses 450,000 Variable selling expenses, per unit Direct labor, per unit Direct materials, per unit Required: A. Compute the dollar amount of ending inventory using the Absorption costing B. Compute the dollar amount of ending inventory using the variable costing

Answer 1

Solution: Q1 a) working Direct material Direct labor variable in direct labor 900000/300000 variable in direct material 600000/300000 other variable manufacturing overhead 1500000/300000 Fixed manufacturing overhead 2400000/300000 unit cost under absorbtion costing x units in ending inventory 300000-280000 Dollar amount of ending inventory 3 20000 1860000 b) working Direct material Direct labor variable in direct labor 900000/300000 variable indirect material 600000/300000 other variable manufacturing overhead 1500000/300000 variable selling expense unit cost under variable costing x units in ending inventory 300000-280000 Dollar amount of ending inventory 40 125 20000 2500000

Q2 Highest level of activity Lowest level of activity Difference Employee hours Labor cost 490 270 220 10988 7600 3388 variable rate=3388/220 15.40 per employee hour 3,442.00 Fixed cost=Total cost-Variable rate* employee hours 10988-15.4*490 Total labor cost=3442+(15.4x Employee hours)