Absorption and Variable Costing; Segmented Income Statements
Fine Leathers Company produces a ladies' wallet and a men's wallet. Selected data for the past year follow:
| |
Ladies' Wallet |
Men's Wallet |
|
Production (units)
|
100,000
|
200,000
|
|
Sales (units)
|
90,000
|
210,000
|
|
Selling price
|
$5.50
|
$4.50
|
|
Direct labor hours
|
50,000
|
80,000
|
|
Manufacturing costs:
|
|
|
|
Direct materials
|
$ 75,000
|
$100,000
|
|
Direct labor
|
250,000
|
400,000
|
|
Variable overhead
|
20,000
|
24,000
|
|
Fixed overhead:
|
|
|
|
Direct
|
50,000
|
40,000
|
|
Commona
|
20,000
|
20,000
|
|
Nonmanufacturing costs:
|
|
|
|
Variable selling
|
30,000
|
60,000
|
|
Direct fixed selling
|
35,000
|
40,000
|
|
Common fixed sellingb
|
25,000
|
25,000
|
a. Common overhead totals $40,000 and is divided equally between the two products.
b. Common fixed selling costs total $50,000 and are divided equally between the two products.
Budgeted fixed overhead for the year, $130,000, equaled the actual fixed overhead. Fixed overhead is assigned to products using a plantwide rate based on expected direct labor hours, which were 130,000. The company had 10,000 men's wallets in inventory at the beginning of the year. These wallets had the same unit cost as the men's wallets produced during the year.
Required:
1. Compute the unit cost for the ladies' and men's wallets using the variable-costing method. Compute the unit cost using absorption costing.
2. Prepare an income statement using absorption costing.
3. Prepare an income statement using variable costing.
4. Reconcile the difference between the two income statements.
5. Prepare a segmented income statement using products as segments.