Response to the following problem:
Porta Light manufactures a high-quality LED flashlight for home/office use. Data pertaining to the company's 2010 operations are as follows:
Production for the year ................................................45,000 units
Sales for the year (sales price per unit, $8) ..........................48,750 units
Beginning 2010 inventory .............................................8,750 units
Costs to produce one unit (2009 & 2010):
Direct material .....................$3.60
Direct labor ........................1.00
Variable overhead .................0.60
Fixed overhead ....................0.40
Selling and administrative costs:
Variable (per unit sold) ........................$0.40
Fixed (per year) ........................... $150,000
Fixed manufacturing overhead is assigned to units of production based on a predetermined OH rate using an expected production capacity of 100,000 units per year.
a. What is budgeted annual fixed manufacturing overhead?
b. If budgeted fixed overhead equals actual fixed overhead, what is underapplied or overapplied fixed overhead in 2010 under absorption costing? Under variable costing?
c. What is the product cost per unit under absorption costing? Under variable costing?
d. How much total expense is charged against revenues in 2010 under absorption costing? Under variable costing?
e. Is income higher under absorption or variable costing? By what amount?