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 (3 lbs. @ 1.30)$3.90 Direct labor (0.4 hr. @ 15.50)6.20 Variable overhead (0.4 hr. @ 4.00)1.60 Fixed overhead (0.4 hr. @ 7.00)2.80 Total$14.50 Selling and administrative costs: Variable$1.80per unit Fixed$216,000

During the year, the company had the following activity:

Units produced27,500 Units sold24,750 Unit selling price$36 Direct labor hours worked11,000

Actual fixed overhead was $12,000 less than budgeted fixed overhead. Budgeted variable overhead was $5,700 less than the actual variable overhead. The company used an expected actual activity level of 11,000 direct labor hours to compute the predetermined overhead rates. Any overhead variances are closed to Cost of Goods Sold.

Required:

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1. Compute the unit cost using (a) absorption costing and (b) variable costing.

Unit CostAbsorption costing$fill in the blank bbe0e6f25f9805c_1Variable costing$fill in the blank bbe0e6f25f9805c_2

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2. Prepare an absorption-costing income statement. Round your answers to the nearest cent.

Cost of goods soldOverapplied overheadSalesSelling and administrative expensesSalesblank$SalesCost of goods soldSalesSelling and administrative expensesUnderapplied overheadCost of goods sold$Cost of goods soldblankLess:blankblankOverapplied overheadSalesSelling and administrative expensesUnderapplied overheadOverapplied overheadOverapplied overheadOverapplied overheadGross profitblank$fill in the blank 29f505f35025049_8Less: Cost of goods soldLess: Overapplied overheadLess: SalesLess: Selling and administrative expensesLess: Selling and administrative expensesblankLess: Selling and administrative expensesOperating incomeblank$fill in the blank 29f505f35025049_11

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3. Prepare a variable-costing income statement. Round your answers to the nearest cent.

Fixed factory overheadSalesSelling and administrative expensesVariable selling expenseSalesblank$SalesFixed factory overheadOverapplied variable overheadSalesVariable cost of goods soldVariable cost of goods sold$Variable cost of goods soldblankAdd:blankblankFixed factory overheadOverapplied variable overheadSelling and administrative expensesUnderapplied variable overheadUnderapplied variable overheadUnderapplied variable overheadUnderapplied variable overheadFixed factory overheadSelling and administrative expensesOverapplied variable overheadVariable selling expenseVariable selling expenseblankVariable selling expenseContribution marginblank$fill in the blank c477c8f9afc2059_10Less:blankblankFixed factory overheadUnderapplied variable overheadVariable cost of goods soldVariable selling expenseFixed factory overhead$Fixed factory overheadblankSelling and administrative expensesUnderapplied variable overheadVariable cost of goods soldVariable selling expenseSelling and administrative expensesSelling and administrative expenses$Selling and administrative expensesOperating incomeblank$

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4. Reconcile the difference between the two income statements. The absorption costing generates an income $fill in the blank 5d1ba3ff200dfbc_1

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than variable costing.