Variable Costing, Absorption CostingDuring its first year of operations, Snobegon, Inc. (located inLake Snobegon,...Variable...

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Variable Costing, Absorption Costing
During its first year of operations, Snobegon, Inc. (located inLake Snobegon, Minnesota), produced 40,000 plastic snow scoops.Snow scoops are oversized shovel-type scoops that are used to pushsnow away. Unit sales were 38,100 scoops. Fixed overhead wasapplied at $0.75 per unit produced. Fixed overhead was underappliedby $2,500. This fixed overhead variance was closed to Cost of GoodsSold. There was no variable overhead variance. The results of theyear’s operations are as follows (on an absorption-costingbasis):
Sales (38,100 units @ $20) $762,000
Less: Cost of goods sold 548,760
Gross margin $213,240
Less: Selling and administrative expenses (all fixed) 185,500
Operating income $ 27,740
Required:
1. Calculate the cost of the firm’s endinginventory under absorption costing. Round unit cost to five decimalplaces. Round your final answer to the nearest dollar.
What is the cost of the ending inventory under variable costing?Round unit cost to five decimal places. Round your final answer tothe nearest dollar.
2. Prepare a variable-costing income statement.Round the unit cost to five decimal places, when required. Roundyour final answers to the nearest dollar. Use the rounded values insubsequent computations.
What is the difference between the two income figures?

Answer & Explanation Solved by verified expert

3.6 Ratings (261 Votes)

1	Cost of ending inventory=Units in ending inventory*Unit cost under absorption costing
	Units in ending inventory=Units produced-Units sold=40000-38100=1900 units
	Unit cost under absorption costing=Cost of goods sold under absorption costing/units sold=548760/38100=$ 14.40315 per unit
	Cost of ending inventory=1900*14.40315=$ 27366

2	Unit cost under variable costing=Unit cost under absorption costing-Fixed overhead applied per unit=14.40315-0.75=$ 13.65315
	Variable costing income statement:
			$	$
	Sales	(38100 units at $ 20)		762000
	Less: Cost of goods sold	(38100*13.65315)		520185
	Gross margin			241815
	Less: Fixed expenses
	Fixed overhead	(40000*0.75)	30000
	Selling and administrative expense		185500	215500
	Operating income			26315

	Difference=27740-26315=$ 1425

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In: AccountingVariable Costing, Absorption CostingDuring its first year of operations, Snobegon, Inc. (located inLake Snobegon,...Variable Costing, Absorption CostingDuring its first year of operations, Snobegon, Inc. (located inLake Snobegon, Minnesota), produced 40,000 plastic snow scoops.Snow scoops are oversized shovel-type scoops that are used to pushsnow away. Unit sales were 38,100 scoops. Fixed overhead wasapplied at $0.75 per unit produced. Fixed overhead was underappliedby $2,500. This fixed overhead variance was closed to Cost of GoodsSold. There was no variable overhead variance. The results of theyear’s operations are as follows (on an absorption-costingbasis):Sales (38,100 units @ $20)$762,000Less: Cost of goods sold548,760 Gross margin$213,240Less: Selling and administrative expenses (all fixed)185,500 Operating income$ 27,740Required:1. Calculate the cost of the firm’s endinginventory under absorption costing. Round unit cost to five decimalplaces. Round your final answer to the nearest dollar.What is the cost of the ending inventory under variable costing?Round unit cost to five decimal places. Round your final answer tothe nearest dollar.2. Prepare a variable-costing income statement.Round the unit cost to five decimal places, when required. Roundyour final answers to the nearest dollar. Use the rounded values insubsequent computations.What is the difference between the two income figures?

Sales (38,100 units @ $20)	$762,000
Less: Cost of goods sold	548,760
Gross margin	$213,240
Less: Selling and administrative expenses (all fixed)	185,500
Operating income	$ 27,740