III.Module+20000+Explanation+and+Examples

Absorption and Variable Costing Module 20000 Example for Absorption and Variable Costing CWR The Game Day Company produces footballs and basketballs. Selected data for the past year are as follows:

Budgeted fixed overhead for the year, $140,000 equaled the actual fixed overhead. Fixed overhead is assigned to products using a plantwide rate based on expected direct labor hours, which were 140,000. The company had 15,000 footballs in inventory at the beginning of the year. These footballs had the same unit cost as the key chains produced the year. Required: 1. Compute the unite cost for the footballs and basketballs 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. Prepare a segmented income statement using products as segments.

1. Solution: 

The unit cost for the basketball is as follows:

The only difference between the two unit costs is the of the fixed overhead cost. The fixed overhead unit cost is assigned using the predetermined fixed overhead rate ($140,000/140,000 DLHrs = $1 per DLH).





5. Segmented income statement: