Question

Colorado Business Tools manufactures calculators. Costs incurred in making 9,940 calculators in February included $29,350 of fixed manufacturing overhead. The total absorption cost per calculator was $10.70.

Required:
a. Calculate the variable cost per calculator.
b. The ending inventory of pocket calculators was 750 units higher at the end of the month than at the beginning of the month. By how much and in what direction (higher or lower) would operating income for the month of February be different under variable costing than under absorption costing?
c. Express the pocket calculator cost in a cost formula.

Answer 1

Answer and Explanation:

The computation is shown below:

a)

Fixed manufacturing overhead per unit is

= $29,350 ÷ 9,940

= $2.95 per unit

Now

Variable cos per calculator is

= $10.70- $2.95

=$ 7.75 per calculator

b)Variable costing income will be lower by

= 750 units × $2.95

= $2,213

= Fixed cost + n × variable cost per calculator

c) The Cost formula (y) is

= $29,350 + 7.75 x