Williamson, Inc., manufactures digital voice recorders. During 2016, total costs associated with...

Question:

Williamson, Inc., manufactures digital voice recorders. During 2016, total costs associated with manufacturing 196,000 of the new EZ 9900 model (introduced this year) were as follows:

Raw materials $1,776,300
Direct labor $2,956,000
Variable manufacturing overhead $746,000
Fixed manufacturing overhead $704,500

Required:

a. Calculate the cost per recorder under both variable costing and absorption costing. (Round your answers to 2 decimal places.)

b. If 21,420 of these recorders were in finished goods inventory at the end of 2016, by how much and in what direction (higher or lower) would 2016 cost of goods sold be different under variable costing than under absorption costing? (Round your intermediate calculations to 2 decimal places and final answer to the whole number.)

c-1. Express the digital voice recorder cost in a cost formula. (Round your answers to 2 decimal places.)

c-2. What does this formula suggest the total cost of making an additional 1,750 recorders would be?

Cost recording under variable & absorption

in variable costing we should consider only variable costs which are variable overall but fixed for per unit does not consider fixed cost & other expenses related to the operation. In absorption costing we include both costs either that are variable or fixed.

Answer and Explanation:

A) COST PER RECORDER UNDER VARIABLE COSTING

Particulars Amount
Units 196000
Raw material 1776300
Direct labor 295600
Variable manufacturing overhead 746000
Total cost of production 5478300
Cost per recorded (total cost of production)/no. of units 5478300/196000
cost per recorded 27.95

COST per recorded under Absorption costing

Raw material 1776300
Direct labor 295600
Variable manufacturing overhead 746000
Fixed overhead 74500
Total cost 6182800
Cost per recorded (Total cost/no. of units) 6128000/196000
cost per recorded 31.54

B) Difference in cost of goods sold

Cost of goods sold under absorption costin 21420*31.54 675586.8
Under variable costing 21420*27.95 598689
Difference 675586.8-598689 76897.8

Hence finished goods under variable costing will be lowered by $76897.80

C) Cost formula

y= a + bx
where y= total cost
a=fixed cost
x= units

For additional units 1750 will be

y=0+1750*27.95
y=0+48912.5
So for additional units cost will be 48912.5

Total cost of 196000+1750 units will be

y=704500+ (196000+1750)27.95
y=704500+5527112.5
y=6231612.5

Learn more about this topic:

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Variable Costing: Method, Formula & Advantages

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