Question

Identify the differences between variable and absorbent costing. Sales 10,000 units Starting inventory 800 units Final...

Identify the differences between variable and absorbent costing.

Sales 10,000 units
Starting inventory 800 units
Final inventory 2000 units
Production 12,000 units
Normal capacity 13,500 units
Production fixed costs $ 87,000
Fixed expenses adm and sale $ 33,000
Variable production cost $ 15
Variable sale expense $ 10
Sale price $ 65
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Answer #1

Absorption cost allocates fixed overhead costs for all the units produced.

Abosrption cost = Direct Material+ Direct Labour+ Variable Manufacturing overheads+ Fixed Manufacturing overheads

(15 for the variable production cost + 10 for variable sale expense ) * no of units produced.

(15+10) * 12000 = 300000

Cost of goods sold = Ending inventory * 25

2000 * 25 = 50000

Absorption cost = 87000 + 33000 + 300000 = 420000

Variable Cost = Direct Material+ Direct Labour+ Variable Manufacturing overheads

87000 + 300000 = 387000

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