Question

Achilles Auto makes and sells batteries. In 2017, it made 100,000 batteries and sold 75,000 of them, at an average selling price of $60 per unit. The following additional information relates to Achilles Auto for 2017: Direct materials $20.00 per unit Direct manufacturing labour $ 4.00 per unit Variable manufacturing costs $1.00 per unit Sales commissions 5 5.00 per part Fored manufacturing costs $ 750.000 per year Administrative expenses, all find $ 270,000 per year What is Achilles Auto's inventoriable cost per unit using (a) variable costing and (b) absorption costing? (20 marks) 2- ZB Toys started 2017 with no inventories. During the year, its expected and actual production was 30,000 units, of which it sold 24,000 units at $50 each. Cost data for the year is as follows: Manufacturing costs incurred: $325,000 Variable: Fixed 5372.000 Marketing costs incurred: Variable: $144,300 Fixed 577400 Calculate ZB Toys's operating income under (a) variable costing and (b) absorption costing. Explain why operating income differs under the two approaches. (40 marks) <

Answer 1

Solution:-A) Inventorial Cost using Variable Costing:-

Pariculars	Amount
Direct Materials	$20
Direct Labor	$4
Variable Manufacturing Cost	$1
Inventoriable Cost per unit	$25

Solution:-B) Inventorial Cost using Absorption Costing:-

Pariculars	Amount
Direct Materials	$20
Direct Labor	$4
Variable Manufacturing Cost	$1
Fixed Manufacturing Costs($750,000/100,000	$7.50
Inventoriable Cost per unit	$32.50

Note:-Sales and Administrative Expenses are period expenses, not to be included in iInventorial cost.

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