What is the total cost of making item a

Assignment Help Accounting Basics

Reference no: EM132899463

Titanic Company

First year of operations: No beginning inventories

BUDGET: Sales 50,000 units

Production 60,000 units

Variable manufacturing $20 per unit

Fixed mfg. allocated $25 per unit

Variable selling & admin. $10 per unit

Fixed selling & admin. allocated $7 per unit

Fixed mfg. per unit is based on budgeted production.

Fixed selling and admin. per unit is based on budgeted sales.

ACTUAL: Sales 48,000 units @ $100 each

Production 58,000 units

We spent $3,000 more than budgeted for fixed manufacturing and $2,000 more than budgeted for fixed S&A expenses.

There are no variable variances.

Fixed Denominator variance must be calculated.

How many units did we produce in relation to the denominator used to create our fixed manufacturing overhead rate? (much easier to use units instead of hours in this case)

Hint: Most common error is treating the fixed manufacturing and fixed selling and admin. expenses as variable. They are not. You will need to calculate what the budgeted fixed manufacturing and fixed selling and admin. expenses must have been.

Required: 1) Compute net income using absorption costing

2) Compute net income using variable (direct) costing

3) Reconcile any difference in the income shown

Understanding NRV

1) You make 5,000 units and sell them for $10 each. Your expenses related to this item total $20,000. What is the net realizable value (NRV)?

2) You make 5,000 units and sell them for $10 each. Your expenses related to this item total $10,000 fixed and $10,000 variable. What is the net realizable value?

3) You make 5,000 units that will sell for $10 each. You sold 4,000 units so far. Your expenses related to this item total $20,000. What is the net realizable value?

4) You make 5,000 units of item A and sell them for $10 each. Your expenses related to this item total $20,000. What is the net realizable value of A? You make 4,000 units of item B and sell them for $20 each. Your expenses related to this item total $60,000. What is the net realizable value of B?

5) You have a $10,000 common or joint cost spent on making item A and item B (in question 4 above) BEFORE they became separate products. How would you allocate the $10,000 joint cost to item A and B based on the NRV method?

6) What is the total cost of making item A?

7) What is the cost per unit to make item A?

8) If we sell 80% of item A, what is the gross profit?

Reference no: EM132899463

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