Problem 8-24

DATA INPUT
Sales Price
Direct Material
Direct Labor
Variable Overhead

$
$
$
$

30
10
4
6

Budgeted Fixed Overhead

Actual Production (containers)
Units Sold

600,000
150,000
125,000

Selling & Administrative Expenses

Fixed
Variable

$100,000
$2

(for the year)

(per container sold)

SOLUTION
1.
Since there were no variances in 20x1 , actual production and budgeted production must have been the same
Predetermined fixed overhead rate (per unit)
$
4
Standard Cost per unit
Direct Material
Direct Labor
Variable Overhead
Standard cost per unit under variable costing
Fixed overhead per unit under absorption costing
Standard cost per unit under absorption costing

$
$
$
$
$
$

10
4
6
20
4
24

ans is 600/150

2.a
SKINNY DIPPERS, INC.
ABSORPTION-COSTING INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 20X4
Sales Revenue
Less: Cost of Goods Sold at standard absorption cost
Gross Margin
Less: Selling and Administrative Expenses
Variable
Fixed
Net Income

$
$
$

3,750,000
3,000,000
750,000

$
$
$

250,000
100,000
400,000

125000 units sold at $30 per unit $

of $20 per unit
$
at $2 per unit
$
$

3,750,000
2,500,000
250,000
1,000,000

$
$
$

600,000
100,000
300,000

$
$
$

3,000,000
2,500,000
500,000

$
$

600,000
(100,000)

$
$
$

300,000
400,000
(100,000)

of $24 per unit

at $2 per unit

2.b
SKINNY DIPPERS, INC.
VARIABLE-COSTING INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 20X4

Sales Revenue
Less: Variable Manufacturing costs at standard variable cost
Less: Variable Selling and Administrative Costs
Gross Margin
Less:
Fixed Manufacturing Overhead
Fixed Selling and Adminstrative Costs
Net Income
3.
Cost of goods sold under absorption costing
Less: Variable manufacturing costs under variable costing
Subtotal
Less: Fixed Manufacturing overhead as period expense
under variable costing
Total
Net Income under variable costing
Less: Net Income under absorption costing
Difference in net income
4.
Difference in reported net income

As shown in requirement (2), reported net income is

=difference in fixed overhead expensed under absorption and variable costing

=Change in Inventory Units X Predetermined Fixed Overhead Rate per unit
$
100,000
$

300,000 lower under variable costing