BSA 21

Assignment – Variable/Absorption Costing

1. The controller at Speedy Delivery wants to break-out the cost of deliveries into fixed and variable
components so that they will be better able to predict costs for next year. Below are the delivery cost
incurred each month and the number of deliveries.

Month Delivery Cost # of deliveries

January $2,176.00 105
February $2,272.00 110
March $1,926.40 92
April $1,696.00 80
May $1,600.00 75
June $2,752.00 135
July $3,616.00 180
August $1,849.60 88
September $1,676.80 79
October $ 3,808.00 190
November $ 3,961.60 198
December $ 4,000.00 200

Required: Using the high-low method:

1.) Calculate the fixed cost of overhead.
2.) Calculate the variable rate per labor hour.
3.) Construct the cost formula for total overhead cost.
4.) The company is estimating that in January the number of deliveries will be 125. How much should
they estimate to have in total delivery costs for January?

2. Lehne Company, which has only one product, has provided the following data concerning its
most recent month of operations:

Selling price............................................... $112

Units in beginning inventory..................... 500

Units produced........................................... 2,600
Units sold................................................... 3,000
Units in ending inventory........................... 100

Variable costs per unit:

Direct materials.......................................... $13
Direct labor................................................ $49
Variable manufacturing overhead.............. $6
Variable selling and administrative........... $10

Fixed costs:
Fixed manufacturing overhead.................. $80,600
Fixed selling and administrative................ $15,000

The company produces the same number of units every month, although the sales in units
vary from month to month. The company's variable costs per unit and total fixed costs have been
constant from month to month.

Required:

a. What is the unit product cost for the month under variable costing?
b. What is the unit product cost for the month under absorption costing?
c. Prepare an income statement for the month using the contribution format and the
variable costing method.
d. Prepare an income statement for the month using the absorption costing method.
e. Reconcile the variable costing and absorption costing net operating incomes for the
month.