CH 8 Question 3

CH 8 Question 3 - its net income be higher or lower and by how much than if it had used variable costing(4 marks(b Briefly explain your answer(2

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Question 3 (6 marks) For the year ended November 30th, 2008, Daily Supplies has an opening finished goods inventory of 200 units, and ending finished goods inventory of 1,200 units. Assume costs have remained constant for the past 3 years of operations. Variable costs per unit consist of $15 manufacturing and $10 selling and administrative. Fixed costs per unit consist of $50 manufacturing and $20 selling and administrative. During the period the company sold 18,800 units. Required: (a) If Daily Supplies uses absorption costing rather than variable costing, would
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Unformatted text preview: its net income be higher or lower and by how much than if it had used variable costing? (4 marks) (b) Briefly explain your answer. (2 marks) ANSWER (a) Absorption costing NI will be Higher than Variable costing ( 2 marks) By 1000 units * 50 FMOH = 50,000 ( 2 marks) (b) Under absorption costing FMOH is recorded as product cost , and is capitalized as part of FG inventory, whereas under Variable costing it is expensed as period costs. (2 marks)...
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This note was uploaded on 02/18/2012 for the course BUSE 237 taught by Professor Sf during the Spring '12 term at Simon Fraser.

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