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During
its first year of operations, O’Brien produced 96,000 units and sold
76,000 units. During its second year of operations, it produced 78,000
units and sold 93,000 units. In its third year, O’Brien produced 81,000
units and sold 76,000 units. The selling price of the company’s product
is $75 per unit.
Explanation:
1. a.
Under variable costing, only the variable manufacturing costs are included in product costs.
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| | Year 1 | Year 2 | Year 3 |
| Direct materials | $ | 27 | $ | 27 | $ | 27 |
| Direct labor | | 15 | | 15 | | 15 |
| Variable manufacturing overhead | | 4 | | 4 | | 4 |
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| Variable costing unit product cost | $ | 46 | $ | 46 | $ | 46 |
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b.
| Year 1: |
| Variable cost of goods sold (76,000 units × $46 per unit) = $3,496,000 |
| Variable selling and administrative expenses (76,000 units × $3 per unit) = $228,000 |
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| Year 2: |
| Variable cost of goods sold (93,000 units × $46 per unit) = $4,278,000 |
| Variable selling and administrative expenses (93,000 units × $3 per unit) = $279,000 |
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| Year 3: |
| Variable cost of goods sold (76,000 units × $46 per unit) = $3,496,000 |
Variable selling and administrative expenses (76,000 units × $3 per unit) = $228,000
Explanation:
2. a.
Under variable costing, only the variable manufacturing costs are included in product costs.
|
| | Year 1 | Year 2 | Year 3 |
| Direct materials | $ | 27 | $ | 27 | $ | 27 |
| Direct labor | | 15 | | 15 | | 15 |
| Variable manufacturing overhead | | 4 | | 4 | | 4 |
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| Variable costing unit product cost | $ | 46 | $ | 46 | $ | 46 |
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b.
| Year 1: |
| Variable cost of goods sold (76,000 units × $46 per unit) = $3,496,000 |
| Variable selling and administrative expenses (76,000 units × $3 per unit) = $228,000 |
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| Year 2: |
| Variable cost of goods sold (93,000 units × $46 per unit) = $4,278,000 |
| Variable selling and administrative expenses (93,000 units × $3 per unit) = $279,000 |
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| Year 3: |
| Variable cost of goods sold (76,000 units × $46 per unit) = $3,496,000 |
Variable selling and administrative expenses (76,000 units × $3 per unit) = $228,000
Explanation:
3. a.
The unit product costs under absorption costing:
|
| | Year 1 | Year 2 | Year 3 |
| Direct materials | $ | 27.00 | $ | 27.00 | $ | 27.00 |
| Direct labor | | 15.00 | | 15.00 | | 15.00 |
| Variable manufacturing overhead | | 4.00 | | 4.00 | | 4.00 |
| Fixed manufacturing overhead | | 5.31 | | 6.54 | | 6.30 |
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| Absorption costing unit product cost | $ | 51.31 | $ | 52.54 | $ | 52.30 |
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| Fixed manufacturing overhead: |
| $510,000 ÷ 96,000 units = $5.31 per unit |
| $510,000 ÷ 78,000 units = $6.54 per unit |
| $510,000 ÷ 81,000 units = $6.30 per unit. |
b.
| Cost of goods sold computations: |
| Year 1: (76,000 units × $51.31 per unit) = $3,899,560 |
| Year 2: (20,000 units × $51.31 per unit) + (73,000 units × $52.54 per unit) = $4,861,620 |
Year 3: (5,000 × $52.54 per unit) + (71,000 × $52.30 per unit) = $3,976,000
Explanation:
4. a.
The unit product costs under absorption costing:
|
| | Year 1 | Year 2 | Year 3 |
| Direct materials | $ | 27.00 | $ | 27.00 | $ | 27.00 |
| Direct labor | | 15.00 | | 15.00 | | 15.00 |
| Variable manufacturing overhead | | 4.00 | | 4.00 | | 4.00 |
| Fixed manufacturing overhead | | 5.31 | | 6.54 | | 6.30 |
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| Absorption costing unit product cost | $ | 51.31 | $ | 52.54 | $ | 52.30 |
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| Fixed manufacturing overhead: |
| $510,000 ÷ 96,000 units = $5.31 per unit |
| $510,000 ÷ 78,000 units = $6.54 per unit |
| $510,000 ÷ 81,000 units = $6.30 per unit. |
b.
| Cost of goods sold computations: |
| Year 1: (76,000 units × $51.31 per unit) = $3,899,560 |
| Year 2: (78,000 units × $52.54 per unit) + (15,000 units × $51.31 per unit) = $4,867,770 |
| Year 3: (76,000 × $52.30 per unit) = $3,974,800 |
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