Hardwood Inc. produces mostly wooden crates used for shipping products by ocean freighter. In 2012, Hardwood incurred the following costs:
Wood used .............................................................. $54,000
Nails (considered insignificant and a variable expense) ............... 350
Direct labour .............................................................. 37,000
Utilities for the plant: $2,000 each month, plus $0.50 for
each kilowatt hour used each month
Rent expense for plant for year ....................................... 21,400
Assume Hardwood used an average of 500 kilowatt hours per month over the past year.
Instructions
(a) Calculate Hardwood's total manufacturing cost if it uses a variable-costing approach.
(b) Calculate Hardwood's total manufacturing cost if it uses an absorption-costing approach.
(c) Determine the reason for the difference between manufacturing costs under these two costing approaches?