ABSORPTION AND VARIABLE COSTING, SEGMENTED INCOME STATEMENTS
Acme Novelty Company produces coin purses and key chains. Selected data for the past year are as follows:
|
|
Coin Purse |
Key Chain |
|
Production (units) |
100,000 |
200,000 |
|
Sales (units) |
90,000 |
210,000 |
|
Selling price |
$5.50 |
$4.50 |
|
Direct labor hours |
50,000 |
80,000 |
|
Manufacturing costs: |
|
|
|
Direct materials |
$ 75,000 |
$100,000 |
|
Direct labor |
250,000 |
400,000 |
|
Variable overhead |
20,000 |
24,000 |
|
Fixed overhead |
50,000 |
80,000 |
|
Nonmanufacturing costs: |
|
|
|
Variable selling |
30,000 |
60,000 |
|
Direct fixed selling |
35,000 |
40,000 |
|
Common fixed selling |
25,000 |
25,000 |
Budgeted fixed overhead for the year, $130,000, equaled the actual fixed overhead. Fixed overhead is assigned to products using a plant wide rate based on expected direct labor hours, which were 130,000. The company had 10,000 key chains in inventory at the beginning of the year. These key chains had the same unit cost as the key chains produced during the year.
Required:
1. Compute the unit cost for the coin purses and key chains using the variable costing method. Compute the unit cost using absorption costing.
2. Prepare an income statement using absorption costing.
3. Prepare an income statement using variable costing.
4. Explain the reason for any difference between absorption and variable costing operating incomes.
5. Prepare a segmented income statement using products as segments.