Question

Steering Manufacturing produces snow shovels. The selling price per snow shovel is $29.00. There is no beginning inventory. Costs involved in production are: Direct material $5.00 Direct labor 4.00 Variable manufacturing overhead 4.00 Total variable manufacturing costs per unit $13.00 Fixed manufacturing overhead per year $181,170 In addition, the company has fixed selling and administrative costs of $172,400 per year. During the year, Steering produces 54,900 snow shovels and sells 49,560 snow shovels

What is cost of goods sold using full costing?

Cost of goods sold $_________

Answer 1

Answer

• Concept

Variable Costing:

Product Cost under Variable costing includes direct material cost, direct labor cost, and variable manufacturing overhead only.

Fixed manufacturing overhead do not form part of the Product cost.

Absorption Costing:

Product Cost under Absorption costing includes direct material cost, direct labor cost, variable manufacturing overhead AND fixed manufacturing overheads.

>Selling, General and administrative expenses (BOTH Variable and Fixed) DO NOT FORM part of product cost.

Product Cost
Absorption Costing	Variable Costing
Direct material	Direct material
Direct Labor	Direct Labor
Variable manufacturing overhead	Variable manufacturing overhead
Fixed manufacturing overhead applied	-

• Working

	Absorption Costing or Full costing
Direct Material	$5.00
Direct Labor	$4.00
Variable manufacturing overhead	$4.00
Fixed manufacturing overhead	$3.30 [$ 181170 / 54900 units]
Total product cost	$16.30

• Cost of Goods Sold
  = 49560 units sold x $ 16.30
  = $ 807,828 Answer