Exercise 13.22

Variable versus absorption costingColorado Business Tools manufactures calculators. Costs incurred in making 12,500 calculators in February included $42,500 of fixed manufacturing overhead. The total absorption cost per calculator was $11.75.

Required:

a. Calculate the variable cost per calculator.

b. The ending inventory of calculators was 925 units higher at the end of the month than at the beginning of the month. By how much and in what direction (higher or lower) would operating income for the month of February be different under variable costing than under absorption costing?

c. Express the calculator cost in a cost formula.