MANAGERIAL ACCOUNTING HANDOUT PROBLEM 7 Score Name Section Problem (10 points). Breadfruit, Inc. began business last year making decorated platters. The unit costs on a normal costing basis are attached. During the year, the company had the following activity. The actual fixed manufacturing overhead was $10,000 greater than the budgeted fixed manufacturing overhead. Any over- or underapplied manufacturing overhead is closed to cost of goods sold at the end of the year. 30,000 BREADFRUIT, INC. MANUFACTURING AND SALES ACTIVITY INFORMATION FOR CURRENT YEAR Units produced Units sold Selling price per unit $ Direct labor hours worked 27,400 50 60,000 REQUIRED: (1) (2) Compute the unit manufacturing cost that the company should use to value its inventory of finished goods using the following costing methods. (a) Variable costing. (b) Absorption costing. Using the attached forms, prepare an income statement for the company using full absorption costing. Show all appropriate calculations. Round all dollar amounts to the nearest whole dollar. Using the attached forms, prepare an income statement for the company using variable costing. Show all appropriate calculations. Round all dollar amounts to the nearest whole dollar. (3) BREADFRUIT, INC. COST INFORMATION FOR COMPANY USING NORMAL COSTING Manufacturing Costs Per Unit: Direct materials (1.5 lbs. at $2 per lb.) $ 3.00 Direct labor (2 hrs. at $9 per hr.) 18.00 Variable manufacturing overhead (2 hrs. at $2.50 per hr.) 5.00 Fixed manufacturing overhead (2 hrs. at $3.25 per hr.) 6.50 Nonmanufacturing Costs: Variable (15% of sales) Fixed 230,000 (2) BREADFRUIT, INC. INCOME STATEMENT--ABSORPTION COSTING FOR CURRENT YEAR Sales Revenue Cost of Goods Sold: Beginning Inventory Cost of Goods Manufactured: Total Cost of Goods Manufactured Total Cost of Goods Available For Sale Less: Ending Inventory Unadjusted Cost of Goods Sold Add (Deduct): Under (Over) applied MOH Adjusted Cost of Goods Sold Gross Profit Operating Expenses: Total Operating Expenses Operating Income (3) BREADFRUIT, INC. INCOME STATEMENT--VARIABLE COSTING FOR CURRENT YEAR Sales Revenue Variable Cost of Goods Sold: Beginning Inventory Variable Cost of Goods Manufactured: Total Variable Cost of Goods Manufactured Total Cost of Goods Available For Sale Less: Ending Inventory Variable Cost of Goods Sold Manufacturing Margin Less Other Variable Costs: 4/4 Contribution Margin Less Fixed Costs: Total Fixed Costs Operating Income