Comfort Corporation manufactures and sells various types ofchairs. The below are the costing details of a chair model, namely,Curver:
- Variable manufacturing cost per unit = $60
- Total fixed manufacturing cost for the year = $1,500,000
- Variable selling and administrative expense per unit sold =$5
- Total fixed selling and administrative cost for the year =$230,000
- Predetermined overhead rate being computed based on theexpected production of 100,000 units
The selling price for the chairs was $150 each.
- If Comfort used the normal absorption costingmethod with all over/under-applied of fixed manufacturing costsdirectly written off to cost of goods sold, what would be the netoperating income on the sale of Curver in its first year when120,000 chairs being produced instead of the 100,000 expectedproduction? Comfort managed to sell 100,000 chairs.
- Based on your answer for Question 5, what would have been thedifference in profit if the variable costing format was usedinstead? A complete variable income statement isnot required.
- If the company had used absorption costing and theactual costing system, what would have beenComfort's net operating income in its first year if 12,000 chairshad been produced instead of 10,000 and Comfort still sold 10,000chairs?
- Using variable costing method only, compare the net operatingincome difference if the company only sold 90,000 chairs instead of100,000 chairs?
