Which of the following statements is true of absorption costing?
a. It is used only for internal reporting purposes.
b. It assigns all manufacturing costs to the product.
c. It treats fixed selling overhead as a product cost.
d. It treats fixed manufacturing overhead as a period cost.
Determine the value of ending inventory under variable costing.
a. $ 1,050,000
b. $ 570,000
c. $ 690,000
d. $ 750,000
Determine the cost of goods sold under absorption costing.
a. $ 360,000
b. $ 500,000
c. $ 400,000
d. $ 540,000
Homework Answers
1) Solution: It assigns all manufacturing costs to the product
Explanation: In the absorption costing method, all production costs, inclusive of fixed and variable are categorised to be product costs.
2) Solution: $750,000
Explanation: Variable-costing unit cost = Direct materials + Direct labor + Variable overhead = $35 + $60 + $30 = $125
Ending Inventory (in units) = Beginning Inventory in units + Units Produced - Units Sold = 0 + 25,000 - 19,000 = 6,000 units
Value of Ending Inventory = Variable Unit Product Cost * Ending Inventory (in units) = $125 * 6,000 units = $750,000
3) Solution: 360,000
Explanation: Absorption-costing unit cost = Direct materials + Direct labor + Variable overhead + Fixed overhead per unit produced = 80 + 50 + 20 + 30 = $180
Cost of Goods Sold = [Units Sold * Absorption Unit Product Cost] = 2000 units * $180 = 360,000
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1. Compute the value of Outback Corporation’s 20x1 ending
finished-goods inventory under absorption costing. (Do not round
intermediate calculations.)
2. Compute the value of Outback Corporation’s 20x1 ending
finished-goods inventory under variable costing. (Do not round
intermediate calculations.)
3. Compute the difference between Outback Corporation’s 20x1
reported operating income calculated under absorption costing and
calculated under variable costing. (Do not round intermediate
calculations.)
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1. Compute the value of Outback Corporation’s 20x1 ending
finished-goods inventory under absorption costing. (Do not round
intermediate calculations.)
2. Compute the value of Outback Corporation’s 20x1 ending
finished-goods inventory under variable costing. (Do not round
intermediate calculations.)
3. Compute the difference between Outback Corporation’s 20x1
reported operating income calculated under absorption costing and
calculated under variable costing. (Do not round intermediate
calculations.)
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