Question
The Pink Flamingo Company keeps no Work in Process Inventories. At the beginning of 2020, it had nothing in Finished Goods Inventory. The company had
The Pink Flamingo Company keeps no Work in Process Inventories. At the beginning of 2020, it had nothing in Finished Goods Inventory. The company had budgeted production and sales of 12,000 units. This amount is also the denominator level for 2020. Actual production for 2020 is 10,000 units and actual sales were 9,500 units in 2020. The company purchased and used the same amount of direct materials during the year. The actual selling price for 2020 was $70 per unit. At the end of 2020, any adjustments are closed totally to Cost of Goods Sold. Unit production costs using standard costing and actual costing are as follows for 2020:
Standard Cost per Unit *SQ x SP) | Actual Cost per Unit | |
Direct Materials | $8.00 | $7.90 |
Direct Labor | $18.00 | $16.00 |
Variable Overhead | $9.00 | $12.00 |
Fixed Overhead | $13.50 | $15.00 |
When using standard absorption costing, the company has the following variances for 2020:
Materials Price Variance | $1,950 U | Variable Overhead Spending (Rate) Variance | $13,000 U |
Materials Quantity Variance | $2,000 F | Variable Overhead Efficiency Variance | $2,500 F |
Labor Rate Variance | $9,000 F | Fixed Overhead Budget Variance | $2,000 F |
Labor Efficiency Variance | $10,000 F | Fixed Overhead Production Volume Variance | $13,500 U |
For all costing methods, overhead is charged to production on the basis of direct labor hours. The standard for labor usage is 1.8 hours per unit, but the actual usage was 1.5 hours per unit. For both fixed and variable overhead, you may assume that the predetermined overhead rates PER HOUR are the same for both normal and standard costing, since normal costing charges overhead costs based on actual hours and standard costing charges overhead costs based on standard hours. Actual period expenses (marketing, distribution, and customer service expenses) are $90,000 fixed per year and $7 variable selling cost.
TASK:
PREPARE THE INCOME STATEMENTS FOR
- NORMAL ABSORPTION COSTING
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