Accounting: What the Numbers Mean 9th Edition by Wayne W McManus, Daniel F Viele, David H Marshall

Exercise 3

Variable versus absorption costing Millan, Inc., manufactures digital voice recorders. During 2010, total costs associated with manufacturing 208,000 of the new MV-5253 model (introduced this year) were as follows:

Raw materials	$1,788,800
Direct labor	2,953,600
Variable manufacturing overhead	748,800
Fixed manufacturing overhead	707,200

Required:

a.Calculate the cost per recorder under both variable costing and absorption costing.

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b. If 20,400 of these recorders were in finished goods inventory at the end of 2010, by how much and in what direction (higher or lower) would 2010 cost of goods sold be different under variable costing than under absorption costing?

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c. Express the digital voice recorder cost in a cost formula. What does this formula suggest the total cost of making an additional 1,700 recorders would be?

Step 1 of 4

Variable costing versus absorption costing:

By extracting the information: