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Ruth Company incurred the following costs in July: Units produced 1,000 units Direct...

Question:

Ruth Company incurred the following costs in July:

Units produced 1,000 units
Direct materials $30 per unit
Direct labor $25 per unit
Variable manufacturing overhead $10 per unit
Fixed manufacturing overhead $7,000 per month
Variable selling and administrative costs $8 per unit
Fixed selling and administrative costs $2,000 per month

List the product costs using absorption costing and variable costing.

What Is Variable Costing:

Although Variable Costing is not permitted under GAAP or IFRS, it can still be used by companies for internal reporting purposes. Variable Costing involves only expensing the variable costs incurred during the period (i.e. fixed costs are excluded).

Answer and Explanation:

See below. I assume that the number of units produced is equal to the number of units sold.

1. Variable costing

Item $
Direct materials $30 per unit
Direct labor $25 per unit
Variable manufacturing overhead $10 per unit
Variable selling and administrative costs $8 per unit
Total variable cost $73 per unit
Units 1,000 units
Total variable cost =1,000*73 $73 ,000

2. Absorption Costing

Item $
Direct materials $30 per unit
Direct labor $25 per unit
Variable manufacturing overhead $10 per unit
Variable selling and administrative costs $8 per unit
Total variable cost $73 per unit
Units 1,000 units
Total variable cost =1,000*73 $73 ,000
Fixed manufacturing overhead $7,000 per month
Fixed selling and administrative costs $2,000 per month
Total absorption cost =73+7+2 $82,000

Learn more about this topic:

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Variable Costing: Method, Formula & Advantages

from Financial Accounting: Help and Review

Chapter 13 / Lesson 5
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