Andréa's Bakery Produces Frozen Pizzas,which It Sells for $10 Each

question 243

Essay

Andréa's Bakery produces frozen pizzas,which it sells for $10 each.The company uses the FIFO inventory costing method and it computes a new monthly fixed manufacturing overhead rate based on the actual number of meals produced that month.All costs and production levels are exactly as planned.The following data are from Andréa's Bakery first two months in business:

Required:
1.Compute the product cost per meal produced under absorption costing and under variable costing.Do this first for July and then for August.
2.Prepare separate monthly income statements for July and for August,using (a)absorption costing and (b)variable costing.
3.Is operating income higher under absorption costing or variable costing in July? In August? Explain the pattern of differences in operating income based on absorption costing versus variable costing.

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Definitions:

W-3

A tax form used in the United States to transmit wage and tax information from employers to the Social Security Administration.

Transmittal

The process or document involved in sending something from one person or place to another.

FICA-OASDI

Federal Insurance Contributions Act - Old Age, Survivors, and Disability Insurance, a U.S. payroll tax funding Social Security.

FUTA

Stands for Federal Unemployment Tax Act, which imposes a payroll tax on employers to help fund state workforce agencies.