Skinny Dippers, Inc. generates nonfat frozen yogurt. The product is sold in five-gallon containers that encompass the given price and variable costs.
Sales price ............................. $15
Direct material .......................... 5
Direct labor .............................. 2
Variable overhead ..................... 3
Budgeted fixed overhead in 20x1, the company's first year of operations, was $300,000. Planned and actual production was 150,000 five-gallon containers, of which 125,000 were sold. Skinny Dippers, Inc. incurred the given selling and administrative expenses.
Fixed ......................... $50,000 for the year
Variable .................. $1 per container sold
Required:
1) Calculate the product cost per container of frozen yogurt under (a) variable costing and (b) absorption costing.
2) Make income statements for 20x1 by using (a) absorption costing and (b) variable costing.
3) Reconcile the income reported beneath the two methods by listing the two key places where the income statements differ.
4) Reconcile the income reported beneath the two methods by using the shortcut method.