Pearson Inc. produces wooden crates used for shipping products by ocean liner.

In 2012, Pearson incurred the following costs.

Assume Pearson used an average 500 kilowatt-hours each month over the past year.
Instructions

(a) What is Pearson’s total manufacturing cost if it uses a variable costing approach?

(b) What is Pearson’s total manufacturing cost if it uses an absorption costing approach?

(c) What accounts for the difference in manufacturing costs between these two costing approaches?

Transcribed Image Text:

Wood used in crate production Nails (considered insignificant and a variable expense) Direct labor Utilities for the plant: $54,000 $ 340 $37,000 $2,000 each month, plus $0.45 for each kilowatt-hour used each month Rent expense for the plant for the year $21,400