Wild Bird Feeders produces deluxe bird feeders for distribution to

Wild Bird Feeders produces deluxe bird feeders for to catalogue companies and wild bird stores. The company uses an absorption costing system for internal reporting purposes but is considering using variable costing. Data regarding Wild Bird’s planned and actual operations for 2012 are presented here:
Beginning finished goods inventory in units………… 30,000
………………………..Planned Activity…………. Actual Activity
Sales in units …………………..140,000 …………………..125,000
Production in units ……………140,000 …………………..130,000
The planned per-unit cost figures shown in the schedule were based on production and sale of 140,000 units in 2012. Wild Bird uses an estimated manufacturing overhead rate for allocating manufacturing overhead to its product; thus, a combined manufacturing overhead rate of $9 per unit was employed for absorption costing purposes in 2012. Any over-applied or under-applied manufacturing overhead is closed to cost of goods sold at the end of the reporting year:

The 2012 beginning finished goods inventory for absorption costing purposes was valued at the 2011 planned unit manufacturing cost, which was the same as the 2012 planned unit manufacturing cost. No work-in-process inventories were recorded either at the beginning or end of the year. The planned and actual unit selling price was $99.00 per unit for 2012. You may want to use a spreadsheet to perform calculations.

REQUIRED

A. What was the value of Wild Bird’s actual ending finished goods inventory on the absorption costing basis?

B. What was the 2012 actual ending fi nished goods inventory on the variable costing basis?

C. What were the manufacturing and the total under variable costing for Wild Bird’s actual results for 2012?

D. Under absorption costing, what were the total fixed costs on the income statement?

1. What were the fi xed selling and administrative costs?

2. What was the amount of overhead allocated to cost of goods sold at standard?

3. Do we need to consider sales of units from last period?

4. What was the amount of underapplied or overapplied overhead closed to cost of goods sold?

5. Sum these amounts for the total fi xed costs.

E. What was the total variable cost expensed in 2012 on the variable costing income statement?

F. Was absorption costing income higher or lower than variable costing income for 2012? Why?

G. What is the amount of difference in income using absorption costing versus variable costing? How did it arise?

 

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