T3-2 Variable costing versus absorption costing (LO 1, 2) Fiendish Friends makes Halloween costumes. The company...
T3-2 Variable costing versus absorption costing (LO 1, 2) Fiendish Friends makes Halloween costumes. The company incurred the following total costs to produce 25,000 costumes.
| Direct materials |
$200,000 |
| Direct labor |
150,000 |
| Variable overhead |
50,000 |
| Fixed overhead |
100,000 |
Required
a.Under the absorption costing method, what is the average unit product cost? Using this method, how much product cost would be recorded on the income statement if 20,000 units were sold?
b.Under the variable costing method, what is the average unit product cost? Using this method, how much product cost would be recorded on the income statement if 20,000 units were sold?
Homework Answers
a.
Average unit product cost = ($200,000 + $150,000 + $50,000 + $100,000) / 25,000 = $20
Product cost = $20 X 20,000 = $400,000
b.
Average unit product cost = ($200,000 + $150,000 + $50,000) / 25,000 = $16
Product cost = $16 X 20,000 = $320,000
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T3-2 Variable costing versus absorption
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