Chapter_6 - Exercise61(15minutes 1 ,(variableandfixed...

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Exercise 6-1  (15 minutes) 1. Under absorption costing, all manufacturing costs (variable and fixed)  are included in product costs. Direct materials .................................... R120 Direct labor ........................................... 140 Variable manufacturing overhead ......... 50 Fixed manufacturing overhead  (R600,000  ÷  10,000 units) .................       60     Unit product cost .................................. R370 2. Under variable costing, only the variable manufacturing costs are  included in product costs. Direct materials .................................... R120 Direct labor ........................................... 140 Variable manufacturing overhead .........       50     Unit product cost .................................. R310 Note that selling and administrative expenses are not treated as product  costs under either absorption or variable costing; that is, they are not  included in the costs that are inventoried. These expenses are always  treated as period costs and are charged against the current period’s  revenue.
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  Exercise 6-3  (20 minutes) 1. Year 1 Year 2 Year 3 Beginning inventories (units) 180 150 160 Ending inventories (units) .... 150 160 200 Change in inventories  (units) ................................ (30 )   10       40     Variable costing net  operating income ............... $292,400 $269,200 $251,800 Add: Fixed manufacturing  overhead cost deferred in  inventory under absorption  costing (10 units  ×  $450  per unit; 40 units  ×  $450  per unit) ............................. 4,500 18,000 Deduct: Fixed  manufacturing overhead  cost released from  inventory under absorption  costing (30 units  ×  $450  per unit) .............................       13,500                                                         Absorption costing net  operating income ............... $278,900 $273,700 $269,800 2. Because absorption costing net operating income was greater than  variable costing net operating income in Year 4, inventories must have  increased during the year and hence fixed manufacturing overhead was  deferred in inventories. The amount of the deferral is just the difference  between the two net operating incomes or $27,000 = $267,200 –  $240,200.
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Problem 6-12  (45 minutes) 1. a. and b.  Absorption  Costing Variable  Costing Direct materials ...................................... $ 86 $86 Variable manufacturing overhead .......... 4 4 Fixed manufacturing overhead 
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  • Summer '10
  • SUE
  • Harshad number, ........., $1,000,000 640,000, $86 4        60, $251,800 4,500 18,000      13,500, $          0    600,000   600,000    120,000      480,000   320,000    280,000

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