Reference no: EM132840205

Problem - Great Outdoze Company manufactures sleeping bags, which sell for $66.30 each. The variable costs of production are as follows:

Direct material $18.40

Direct labor 10.30

Variable manufacturing overhead 6.60

Budgeted fixed overhead in 20x1 was $155,000 and budgeted production was 25,000 sleeping bags. The year's actual production was 25,000 units, of which 22,000 were sold. Variable selling and administrative costs were $1.90 per unit sold; fixed selling and administrative costs were $30,000.

Required -

1. Calculate the product cost per sleeping bag under (a) absorption costing and (b) variable costing.

2-a. Prepare an operating income statement for the year using absorption costing.

2-b. Prepare an operating income statement for the year using variable costing.

3. Reconcile reported operating income under the two methods using the shortcut method.