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
Business   Accounting   
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Homework Answers

Answer #1

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

*** Please rate the answer if you find it useful and feel free to ask any query regarding the question. Thans***

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