2. a. Year 1 Year 2 Year 3
Variable manufacturing cost... $ 2.00 $ 2.00 $ 2.00
Fixed manufacturing cost:
$480,000 ÷ 50,000 units... 9.60
$480,000 ÷ 60,000 units... 8.00
$480,000 ÷ 40,000 units... 12.00
Unit product cost ... $11.60 $10.00 $14.00
b. Variable costing net operating in-
come (loss)... $30,000 $(100,000) $ 30,000
Add (Deduct): Fixed manufactur-
ing overhead cost deferred in
inventory from Year 2 to Year 3
under absorption costing
(20,000 units × $8.00 per unit) ... 160,000 (160,000)
Add: Fixed manufacturing over-
head cost deferred in inventory
from Year 3 to the future under
absorption costing (10,000 units
× $12.00 per unit)... 120,000
Absorption costing net operating
income (loss) ... $30,000 $ 60,000 $ (10,000)
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