Question

TroutPro Co. manufactures fishing equipment. During 2016, total costs associated with manufacturing 14,500 fly-cast fishing rods (a new product introduced this year) were as follows:

Raw materials	$	64,800
Direct labor		15,800
Variable manufacturing overhead		11,300
Fixed manufacturing overhead		17,000

Required:

a. Calculate the cost per fishing rod under both variable costing and absorption costing. (Round your answers to 2 decimal places.)

Variable cost per rod		each
Absorption cost per rod		each

b. If 300 of these fishing rods were in finished goods inventory at the end of 2016, by how much and in what direction (higher or lower) would 2016 operating income be different under variable costing than under absorption costing?

c-1. Express the fishing rod cost in a cost formula.

c-2. What does this formula suggest the total cost of making an additional 325 fishing rods would be?

Answer 1

a)	Variable cost per rod			6.34	each
	Absorption cost per rod			7.51	each
					absorption	Variable
						costing
		Direct materials			4.47	4.47
		direct labor			1.09	1.09
		variable manufacturing OH			0.78	0.78
		Fixed MOH (17000/14500)			1.17
		total			7.51	6.34
b)	income under variable costing will be lower than absorption costing
	by	352
	(1.17*300)
	(just check whether 351 or 352 is correct , due to rounding
c-1)	cost formula
	Y   = a + bx
	Y    = 17000 + 6.34X
c-2)	total cost of making addittional 325 will cost
	325*6.34
	2061	answer