Exercise 18.15 (Algorithmic) 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 (4 lbs.@1.20)	$4.80
Direct labor (0.45 hr.@16.50)	$7.43
Variable overhead (0.45 hr.@4.00)	$1.80
Fixed overhead (0.45 hr.@9.00)	$4.05
Total	18.08
Selling and administrative costs:
Variable	$1.60	per unit
Fixed	$215,000

During the year, the company had the following activity:

Units produced	26,500
Units sold	23,850
Unit selling price	$37
Direct labor hours worked	11,925

Actual fixed overhead was $11,000 less than budgeted fixed overhead. Budgeted variable overhead was $4,500 less than the actual variable overhead. The company used an expected actual activity level of 11,925 direct labor hours to compute the predetermined overhead rates. Any overhead variances are closed to Cost of Goods Sold.

Prepare an absorption-costing income statement.

Sales		882450
Less:
Cost of Goods Sold	_____?_____
Overapplied overhead	_____?_____	_____?_____
Gross Profit		_____?_____
Less: Selling and Administraive expenses		253160
Operating Income		_____?_____

Prepare a Variable Costing Income Statement

Sales		882450
Less:
Variable cost of goods sold	334615.50
Underapplied variable overhead	_____?_____	_____?_____
Variable Selling Expense		_____?_____
Contribution Margin		_____?_____
Less:
Fixed Factory Overhead	_____?______
Selling and Administraitve Expenses	_____?_____	_____?_____
Operating Income		_____?_____