Question

# 1. Compute the product cost per meal produced under absorption costing and under variable costing. 2....

 1. Compute the product cost per meal produced under absorption costing and under variable costing. 2. Prepare income statements for January 2018 ​using: a. absorption costing. b. variable costing. 3. Is operating income higher under absorption costing or variable costing in January?

Stella​'s Foods produces frozen meals that it sells for \$7 each. The company computes a new monthly fixed manufacturing overhead allocation rate based on the planned number of meals to be produced that month. Assume all costs and production levels are exactly as planned. The following data are from Stella​'s ​Foods's first month in​ business.

 January 2018 Units produced and sold Sales                                                                                           850 meals Production                                                                              1050 meals Variable manufacturing cost per meal        \$                        3 Sales commission cost per meal                                             1 Total fixed manufacturing overhead                                315 Total fixed selling and administrative cost                       400

Part 1

Calculation of Product Cost per meal

 Absorption Costing Variable Costing Variable Manufacturing Expenses per Meal \$ 3.00 \$ 3.00 Fixed Overhead \$ 0.30 0 Product Cost \$ 3.30 \$ 3.00

Part 2

 Absorption Sales \$ 5950 Less: COGS \$ 2805 GP on Sales \$ 3145 Less: Operating Expenses Variable \$ 850 Fixed \$ 400 Operating Income \$ 1895

Variable Costing

 Particulars Amount Sales \$ 5950 LESS: COGS \$ 2550 Sales Commission \$ 850 Contribution \$ 2550 LESS: Fixed Mfg and Selling OH \$ 715 Operating Profit \$ 1835

Operating profit is higher in Abosrption Costing

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