Variable versus absorption costing
Response to the following problem:
Williamson, Inc., manufactures digital voice recorders. During 2013, total costs associated with manufacturing 32,000 of the new EZ 9900 model (introduced this year) were as follows:
Raw materials $275,000
Direct labor 454,000
Variable manufacturing overhead 115,200
Fixed manufacturing overhead 108,800
Required:
a. Calculate the cost per recorder under both variable costing and absorption costing.
b. If 4,200 of these recorders were in finished goods inventory at the end of 2013, by how much and in what direction (higher or lower) would 2013 cost of goods sold be different under variable costing than under absorption costing?
c. Express the digital voice recorder cost in a cost formula. What does this formula suggest the total cost of making an additional 500 recorders would be?