Hello I am working on two questions below however I am unsur

Hello, I am working on two questions below, however I am unsure of how to solve them. I would be grateful for help in solving these two questions.

2. Crate Express Co. produces wooden crates used for shipping products by ocean liner. In 2017, Crate Express incurred the following costs.

1. Langdon Company produced 8,600 units during the past year, but only 8,100 of the units were sold. The following additional information is also available. Direct materials used $88,600 Direct labor incurred $28,000 Variable manufacturing overhead $21,000 Fixed manufacturing overhead $43,000 Fixed selling and administrative expenses $71,500 Variable selling and administrative expenses $8,000 There was no work in process inventory at the beginning and end of the year, nor did Langdon have any beginning finished goods inventory.

Solution

Langdon Company

Determination of finished goods inventory cost on December 31 under variable costing:

Under variable costing approach, the product cost is assumed to include only direct or variable costs and not any fixed costs. Hence, the total product cost for 8,600 units of production is determined as follows,

Direct materials $88,600

Direct labor$28,000

Variable MOH$21,000

Total product cost$137,600

Units produced8,600

Cost per unit$137,600/8,600 = $16

Finished goods in units = number of units produced – number of units sold

= 8,600 – 8,100 = 500 units

Finished goods inventory cost under variable costing = $16 x 500 units = $8,000

The finished goods inventory cost does not include the variable selling and administration cost as the goods are not sold yet.

Determination of which method of costing would show higher net income for the year – absorption costing or variable costing:

number of units produced

8,600

total manufacturing cost per unit

$180,600/8,600 = $21

number of units sold

8,100

finished goods

500

finished goods inventory cost

$21 x 500 = $10,500

Difference between the absorption costing and variable costing,

Finished goods inventory cost under absorption costing$10,500

Finished goods inventory cost under variable costing$8,000

Difference is = 10,500 – 8,000 = $2,500

Hence, absorption costing would show higher net income by $2,500 for the year.

Crate Express Co

Cost of wood used$59,000

Cost of nails$490

Direct labor$40,100

Utilities expense at $0.40/KW/month$2,400($0.40 x 500 KW x 12 months)

Total manufacturing costs$101,990

Hence, total manufacturing cost under variable costing is $101,990.

            Note:

Fixed utilities cost of $1,200 per month and rent expense is period costs and hence do not form part of total manufacturing cost under variable costing method.

cost of wood used

$59,000

cost of nails

$490

direct labor

$40,100

utilities expense -

variable

$2,400 ($0.40 x 500 x 12)

fixed

$14,400 (1,200 x 12)

$16,800

Rent of plant

$25,000

Total manufacturing cost

$141,390

Hence, total manufacturing cost under absorption costing is $141,390.

number of units produced	8,600
total manufacturing cost per unit	$180,600/8,600 = $21
number of units sold	8,100
finished goods	500
finished goods inventory cost	$21 x 500 = $10,500