During its first year of operations, Hakdog, Inc. produced 40,600 hotdogs. Unit sales were 38,500 hotdogs. Fixed overhead was applied at $0.75 per unit produced. Fixed overhead was underapplied by $2,800. This fixed overheadvariance was closed to Cost of Goods Sold. There was no variable overhead variance. Theresults of the year’s operations are as follows (on an absorption-costing basis): Sales (38,500 units @ 20) 770,000 Less: COGS 549,460 Gross Margin 220,540 Less: Selling and administrative expenses (all fixed) 184,500 Operating income 36,040 Required: 1. Calculate the cost of the firm’s ending inventory under absorption costing. In your computations, round the unit cost to five decimal places. Round your final answer to the nearest dollar. 2. What is the cost of the ending inventory under variable costing? In your computations,round the unit cost to five decimal places. Round your final answer to the nearest dollar. 3. Prepare a variable-costing income statement. Round the unit cost to five decimal placeswhen determining the variable cost of goods sold.
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
During its first year of operations, Hakdog, Inc. produced 40,600 hotdogs. Unit sales were 38,500 hotdogs. Fixed overhead was applied at $0.75 per unit produced. Fixed overhead was underapplied by $2,800. This fixed overheadvariance was closed to Cost of Goods Sold. There was no variable overhead variance. Theresults of the year’s operations are as follows (on an absorption-costing basis):
Sales (38,500 units @ 20) 770,000
Less: COGS 549,460
Gross Margin 220,540
Less: Selling and administrative expenses (all fixed) 184,500
Operating income 36,040
Required:
1. Calculate the cost of the firm’s ending inventory under absorption costing. In your computations, round the unit cost to five decimal places. Round your final answer to the nearest dollar.
2. What is the cost of the ending inventory under variable costing? In your computations,round the unit cost to five decimal places. Round your final answer to the nearest dollar.
3. Prepare a variable-costing income statement. Round the unit cost to five decimal placeswhen determining the variable cost of goods sold.
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