Crate Express Co. produces wooden crates used for shipping products by ocean liner. In 2020, Crate Express incurred the following costs.
Wood used in crate production …………………………………………………………………………….. $54,000
Nails (considered insignificant and a variable expense) ………………………………………… $ 350
Direct labor ………………………………………………………………………………………………………….. $43,000
Utilities for the plant:
$1,500 each month, plus $0.50 for each kilowatt-hour used each month
Rent expense for the plant for the year …………………………………………………………………. $21,400
Assume Crate Express used an average 500 kilowatt-hours each month over the past year.
Instructions
a. What is Crate Express’s total manufacturing cost if it uses a variable costing approach?
b. What is Crate Express’s total manufacturing cost if it uses an absorption costing approach?
c. What accounts for the difference in manufacturing costs between these two costing approaches?
