(Standard costing; variable and absorption costing) Olympic Star Company manu¬ factures athletes’ foot powder. The company uses a standard costing system. Following are data pertaining to the company’s operations for 1996:

Fixed manufacturing overhead is assigned to units of production based on a predetermined rate using a normal production capacity of 200,000 units per year.

a. What is the estimated annual fixed manufacturing overhead?

b. If estimated fixed overhead is equal to actual fixed overhead, what is the amount of under- or overapplied overhead in 1996 under absorption costing? Under variable costing?

c. What is the product cost per unit under absorption costing? Under variable costing?

d. How much expense will be charged against revenues in 1996 under absorp¬ tion costing? Under variable costing?

e. Will pretax income be higher under absorption or variable costing? By what amount?LO1

Transcribed Image Text:

Production for the year 180,000 units Sales for the year (sales price per unit, $1.25) Beginning 1996 inventory 195,000 units 35,000 units