Hardwood Inc. produces wooden crates used for shipping products by ocean liner. In 2011, Hardwood incurred the following costs.
Wood used in crate production ………………………………….$54,000
Nails (considered insignificant and a variable expense) ………….$ 340
Direct labor ………….………….………….………….………….$37,000
Utilities for the plant:
$2,000 each month, plus $0.45 for each kilowatt hour used
each month Rent expense for the plant for the year ….………….$21,400
Assume Hardwood used an average 500 kilowatt hours each month over the past year.
Instructions
(a) What is Hardwood’s total manufacturing cost if it uses a variable costing approach?
(b) What is Hardwood’s total manufacturing cost if it uses an absorption costing approach?
(c) What accounts for the difference in manufacturing costs between these two costing approaches?