Operating Data for Fowler Company and Its Absorption Costing Income

question 63

Essay

Operating data for Fowler Company and its absorption costing income statements for the last two years are presented below:

Variable manufacturing costs are $6 per unit. Fixed manufacturing overhead totals $72,000 in each year. This overhead is applied at the rate of $4 per unit. Variable selling and administrative expenses were $2 per unit sold.

Required:

a) What was the unit product cost in each year under variable costing?
b) Prepare new income statements for each year using variable costing.
c) Reconcile the absorption costing and variable costing operating income for each year.

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Definitions:

Price Ceiling

A government-imposed limit on how high a price can be charged for a product or service, typically used to control costs for essential items like food and rent.

Equilibrium Price

The market price at which the quantity of goods supplied is equal to the quantity of goods demanded, representing a state of market balance.

Shortage

A situation where demand exceeds supply, resulting in insufficient availability of a product or service.

Permanent Shortage

A sustained situation where the demand for a good or service persistently exceeds its supply, often due to fixed or limited quantities.