Absorption and Variable Costing with Over- and Underapplied Overhead
Flaherty, Inc., has just completed its first year of operations. The unit costs on a normal costing basis are as follows:
Manufacturing costs (per unit):
Direct Materials (4 lbs. @ $1.50) $6.00
Direct Labor (0.5 hr. @ $18) 9.00
Variable Overhead (0.5 hr. @ $6) 3.00
Fixed Overhead (0.5 hr. @ $9) 4.50
TOTAL $22.50
Selling and Administrative costs:
Variable $2 per unit
Fixed $238,000
During the year, the company had the following activity:
Units Produced 24,000
Units Sold 21,300
Unit Selling Price $36
Direct Labor Hours Worked 12,000
Actual fixed overhead was $12,000 less than budgeted fixed overhead. Budgeted variable overhead was $5,000 less than the actual variable overhead. The company used an expected actual activity level of 12,000 direct labor hours to compute the predetermined overhead rates. Any overhead variances are closed to Cost of Goods Sold.
Required:
1. Compute the unit cost using (a) absorption costing and (b) variable costing. Round your answers to the nearest cent.
Unit Cost
Absorption costing $
Variable costing $
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The unit cost under absorption costing includes one more cost than under variable costing.
The unit cost under variable costing includes one less cost than under absorption costing.