Managerial Accounting: P8-29 Great Outdoze, Inc. manufactures high-quality sleeping bags

Managerial Accounting

P8-29
Great Outdoze, Inc. manufactures high-quality sleeping bags, which sell for $130 each. The variable costs of production are as follows:
Direct material 40
Direct labor 22
Variable manufacturing overhead 16
Budgeted fixed overhead in 20x4 was $400,000 and budgeted production was 25,000 sleeping bags.
The year's actual production was 25,000 units, of which 22,000 were sold. Variable selling and administrative costs were $2 per unit sold; fixed selling and administrative costs were $60,000.

Required:
1. Calculate the product cost per sleeping bag under ( a ) absorption costing and ( b ) variable costing.
2. Prepare income statements for the year using ( a ) absorption costing and ( b ) variable costing.
3. Reconcile reported income under the two methods using the shortcut method.
4. Suppose that Great Outdoze, Inc. implemented a JIT inventory and production management system at the beginning of 20x4.
In addition, the firm installed a flexible manufacturing system. Would you expect reported income under variable and absorption costing to be different by as great a magnitude as you found in requirement (3)? Explain.
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