8-15, 8-16, 8-17, 8-19 (Requirements: 1&2)

EXERCISE 8-15 (15 MINUTES)

Inventory calculations (units):

Finished-goods inventory, January 1 ..............  

unit
2,000s
Add: Units produced ......................................  
unit
20,000s
Less: Units sold .............................................  
unit
21,000s
Finished-goods inventory, December 31 .........  
unit
 1,000s

1. Variable costing:

Inventoriable costs under variable costing:

Direct material used ...................................... $300,000

Direct labor incurred ..................................... 150,000
Variable manufacturing overhead .................. 100,000
Total ............................................................. $550,000

Cost per unit produced = $550,000/20,000

units = $27.50 per unit

  Ending inventory: 1,000 units × $27.50 per

unit .............................................................. $ 27,500

2. Absorption costing:
Predetermined fixed-overhead rate
 fixedmanufactuin
r g overhead $210,000
= plannedproduction
= 20,000units
= $10.50 per unit

Difference in fixed  changein  predeterm

  
i 
ned

overhead expensed  × fixed
 inventory -overhead
under =  inunits   rate 
   
absorption and variable
costing

(1,000 units) × ($10.50

=
per unit)

= $10,500
Difference in reported income:
Since inventory decreased during the year, income
reported under absorption costing will be $10,500
lower than income reported under variable costing.

EXERCISE 8-16 (15 MINUTES)

1. a. Inventory increases by 3,000 units, so income is

greater under absorption costing.

b. Fixed overhead rate per unit = $396,000 /

110,000 = $3.60

Difference in reported income = $3.60 x

3,000 = $10,800

2. a. Inventory decreases by 5,000 units, so income is

greater under variable costing.
 b. Fixed overhead rate per unit = $396,000 /
88,000 = $4.50

Difference in reported income = $4.50 x

5,000 = $22,500

3. a. Inventory remains unchanged, so there is no

difference in reported income under the two
methods of product costing.
b. No difference.
EXERCISE 8-17 (10 MINUTES)

1. Inventoriable costs under absorption costing:

Direct material used ...................................... $272,0
00
Direct labor ...................................................  
128,00
0
Variable manufacturing overhead ..................   
60,000
Fixed manufacturing overhead ......................  
100,00
0
Total ............................................................. $560,0
00

2. Inventoriable costs under variable costing:

Direct material used ...................................... $272,0
00
Direct labor ...................................................  
128,00
0
Variable manufacturing overhead ..................   
60,000
Total ............................................................. $460,0
00
EXERCISE 8-19 (25 MINUTES)

Inventory calculations (units):

Finished-goods inventory, January 1 ..............  

unit
0s
Add: Units produced ......................................  
unit
10,000s
Less: Units sold .............................................  
unit
 9,000s
Finished-goods inventory, December 31 .........  
unit
 1,000s

1. Variable costing:

Inventoriable costs under variable costing:

Direct material used ...................................... $

80,000
Direct labor incurred .....................................  
40,000
Variable manufacturing overhead ..................  
24,000
Total ............................................................. $144,0
00

Cost per unit produced = $144,000/10,000

units = $14.40 per unit

  Ending inventory: 1,000 units × $14.40 per $

unit .............................................................. 14,400

2. Absorption costing:
Predetermined fixed-overhead rate
 fixedmanufactuin
r g overhead $50,000
= plannedproduction
= 10,000units =
$5.00 per unit

Difference in fixed changein

 
 predeterm

nied

overhead expensed  × fixed
 inventory -overhead 
under =  inunits   rate 
   
absorption and variable
costing

(1,000 units) × ($5.00

=
per unit)

= $5,000
Difference in reported income:
Since inventory increased during the year, income
reported under absorption costing will be $5,000
higher than income reported under variable costing.