PROBLEM 513 Reconciling Variable and Full Costing Income LO

PROBLEM 5-13. Reconciling Variable and Full Costing Income [LO 1, 21 The following infor- mation relates to Jarden Industries for fiscal 2017, the company\'s first year of operation: Units produced Units sold Units in ending inventory Fixed manufacturing overhead 150,000 120,000 30,000 $900,000 REQUIRED a. Calculate the amount of fixed manufacturing overhead that would be expensed in 2017 using full costing. b. Calculate the amount of fixed manufacturing overhead that would be expensed in 2017 using variable costing c. Calculate the amount of fixed manufacturing overhead that would be included in ending inven- tory under full costing and reconcile it to the difference between parts a and b.

Solution

units produced=150,000 units

units sold=120,000 units

units in ending inventory=30,000 units

Fixed manufacturing overhead= $ 900,000

under Variable costing::

fixed manufacturing overhead=$ 900,000

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under ending inventory =units in ending inventory * (Fixed manu. overheads / units produced)

=30000 *(900,000/150000)

=$ 180000

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under full costing =(Fixed manu. overheads- Fixed manu overheads in ending inventory)

=900000-180000=$ 720000