Last year, Fabre Company produced 20,000 units and sold 18,000 units at a price of $12. Costs for last year were as follows:Direct materials $25,000Direct labor $35,000Variable factory overhead $12,000Fixed factory overhead $37,000Variable selling expense $9,000Fixed selling expense $7,500Fixed administrative expense $15,500Fixed factory overhead is applied based on expected production. Last year, Fabre expected to produce 20,000 units. Assuming that beginning inventory was zero, what would be the profit under variable costing and absorption costing? Group of answer choices$82,200; $85,900$75,000; $78,700$83,100; $79,400$83,100; $75,000None of above
Question
Last year, Fabre Company produced 20,000 units and sold 18,000 units at a price of 25,000Direct labor 12,000Fixed factory overhead 9,000Fixed selling expense 15,500Fixed factory overhead is applied based on expected production. Last year, Fabre expected to produce 20,000 units. Assuming that beginning inventory was zero, what would be the profit under variable costing and absorption costing? Group of answer choices85,90078,70079,40075,000None of above
Solution
To calculate the profit under variable costing and absorption costing, we first need to calculate the cost per unit under both methods.
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Variable Costing: Under variable costing, only the variable costs are included in the product cost. This includes direct materials, direct labor, and variable factory overhead.
Total Variable Cost = Direct materials + Direct labor + Variable factory overhead Total Variable Cost = 35,000 + 72,000
Variable Cost per Unit = Total Variable Cost / Total Units Produced Variable Cost per Unit = 3.6
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Absorption Costing: Under absorption costing, both variable and fixed manufacturing costs are included in the product cost. This includes direct materials, direct labor, variable factory overhead, and fixed factory overhead.
Total Cost = Direct materials + Direct labor + Variable factory overhead + Fixed factory overhead Total Cost = 35,000 + 37,000 = $109,000
Cost per Unit = Total Cost / Total Units Produced Cost per Unit = 5.45
Next, we calculate the profit under both methods.
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Variable Costing:
Total Revenue = Units Sold * Selling Price Total Revenue = 18,000 * 216,000
Total Variable Cost = Units Sold * Variable Cost per Unit Total Variable Cost = 18,000 * 64,800
Total Fixed Cost = Fixed factory overhead + Fixed selling expense + Fixed administrative expense Total Fixed Cost = 7,500 + 60,000
Profit = Total Revenue - Total Variable Cost - Total Fixed Cost Profit = 64,800 - 91,200
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Absorption Costing:
Total Revenue = Units Sold * Selling Price Total Revenue = 18,000 * 216,000
Total Cost = Units Sold * Cost per Unit Total Cost = 18,000 * 98,100
Total Fixed Cost = Fixed selling expense + Fixed administrative expense Total Fixed Cost = 15,500 = $23,000
Profit = Total Revenue - Total Cost - Total Fixed Cost Profit = 98,100 - 94,900
So, the profit under variable costing is 94,900. Therefore, none of the given options is correct.
Similar Questions
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