Variable versus absorption costing Millan, Inc., manufactures digital voice recorders. During 2010, total costs associated with manufacturing 208,000 of the new MV-5253 model (introduced this year) were as follows:
Raw materials | $1,788,800 |
Direct labor | 2,953,600 |
Variable manufacturing overhead | 748,800 |
Fixed manufacturing overhead | 707,200 |
Required:
a.Calculate the cost per recorder under both variable costing and absorption costing.
b. If 20,400 of these recorders were in finished goods inventory at the end of 2010, by how much and in what direction (higher or lower) would 2010 cost of goods sold be different under variable costing than under absorption costing?
c. Express the digital voice recorder cost in a cost formula. What does this formula suggest the total cost of making an additional 1,700 recorders would be?
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