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

Exercise 89

Variable versus absorption costing Precision Numbers, Inc., manufactures pocket calculators. Costs incurred in making 25,000 calculators in April included $85,000 of fixed manufacturing overhead. The total absorption cost per calculator was $12.50.

Required:

a.Calculate the variable cost per calculator.

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b. The ending inventory of pocket calculators was 1,850 units higher at the end of the month than at the beginning of the month. By how much and in what direction (higher or lower) would operating income for the month of April be different under variable costing than under absorption costing?

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c. Express the pocket calculator cost in a cost formula.

Step 1 of 4

Variable versus absorption costing

By extracting the information: