Skinny Dippers, Inc. produces nonfat frozen yogurt. The product is sold in five-gallon containers, which have the following price and variable costs.

Sales price ................................................................................................................ $15

Direct material ........................................................................................................... 5

Direct labor ................................................................................................................ 2

Variable overhead ...................................................................................................... 3

Budgeted fixed overhead in 20x1, the company's first year of operations, was $300,000. Planned and actual production was 150,000 five-gallon containers, of which 125,000 were sold. Skinny Dippers, Inc. incurred the following selling and administrative expenses.

Fixed ................................................................................................ $50,000 for the year

Variable ............................................................................................ $1 per container sold

¦Problem 8-21

Straightforward Problem on

Absorption versus Variable

Costing

(LO 2, 3, 4)

2(a). Net income: $200,000

3. Cost of goods sold under absorption costing:

$1,500,000

All applicable Problems are available with McGraw-Hill'sConnect AccountingTM.

accounting

Chapter 8Absorption and Variable Costing341

Required:

1.Compute the product cost per container of frozen yogurt under (a) variable costing and

(b) absorption costing.

2.Prepare income statements for 20x1 using (a) absorption costing and (b) variable costing.

3.Reconcile the income reported Andrethe two methods by listing the two key places where the income statements differ.

4.Reconcile the income reported under the two methods using the shortcut method.