Variable versus absorption costing Colorado Business Tools manufactures calculators. Costs incurred in making 9,500 calc...
Variable versus absorption costing Colorado Business Tools manufactures calculators. Costs incurred in making 9,500 calculators in February included $29,450 of fixed manufacturing overhead. The total absorption cost per calculator was $10.25.
A. Calculate the variable cost per calculator.
B. The ending inventory of pocket calculators was 750 units higher at the end of the month than at the beginning of the month. By how much and in what direction (higher or lower) would operating income for the month of February be different under variable costing than under absorption costing?
C. Express the pocket calculator cost in a cost formula.
Homework Answers
A. Variable cost of calculator =Absorption per calculator - Fixed manufacturing
= $10.25 - $29,450/9500
= $7.15 per calculator
B. Income = Ending inventory units*Unit cost = 750*3.10 = $2325
The ending inventory absorption will be higher by 2325, so income for variable costing would be 2325 low absorption.
C. Total cost=Fixed cost +Variable cost rate* Activity
29450+$7.15 X number of calculators
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