Question

Xenoc produces stereo speakers. The selling price per pair of speakers is $1,800. There is no beginning inventory. Costs involved in production are: Direct material $ 150 Direct labor 200 Variable manufacturing overhead 100 Total variable manufacturing costs per unit $ 450 Fixed manufacturing overhead per year $600,000 In addition, the company has fixed selling and administrative costs: Fixed selling costs per year $210,000 Fixed administrative costs per year $110,000 What is cost of goods sold using full costing? EXERCISE 5-6. [LO 1] During the year, Xenoc produces 1,500 pairs of speakers and sells 1,200 pairs. REQUIRED What is cost of goods sold using variable costing?

Answer 1

1) Full Costing

Under full costing, Fixed manufacturing overhead is considered as product cost and included in the cost of goods sold.

Fixed Manufacturing Overhead per unit produced = $600,000/1,500 = $400 per unit

Unit Cost of product = Direct Materials+Direct Labor+Variable manufacturing OH+Fixed Manufacturing OH

= $150+$200+$100+$400 = $850 per unit

Total cost of goods sold = Units sold*Unit Product Cost = 1,200*$850 = $1,020,000

2) Variable Costing

Under variable costing, Fixed manufacturing overhead is considered as period cost and not included in the cost of goods sold.

Unit Cost of product = Direct Materials+Direct Labor+Variable manufacturing OH

= $150+$200+$100 = $450 per unit

Total cost of goods sold = Units sold*Unit Product Cost = 1,200*$450 = $540,000