Abigail Corporation produces widgets. In 2008, its first year of operations, the

Question

Abigail Corporation produces widgets. In 2008, its first year of operations, the company produced 100,000 widgets and sold 90,000 widgets. The selling price is $70 per widget.

The production costs are
Direct Materials $10 per widget
Direct Labor $5 per widget
Variable Manufacturing Overhead $12 per widget
Fixed Manufacturing Overhead $600,000 in total

The company also had fixed selling costs of $100,000 and fixed administration costs of $150,000

Answer the following questions:

1. How many widgets are in the inventory at the end of the year?
2. Under the variable costing method, are fixed overhead costs a product or period cost?
3. Under the full costing method, are fixed overhead costs a product or period cost?
4. Under the full costing method, are fixed selling costs a product or period cost?
5. What is the product cost of one widget using the full costing method?
6. What is the product cost of one widget using the variable costing method?
7. What is the cost of goods sold using the full costing method?
8. What is the variable cost of goods sold?
9. What is the dollar value of the widget inventory at the end of the year using full costing?
10. What is the dollar value of the widget inventory at the end of the year using variable costing?

Explanation / Answer

Under variable costing, only direct material, direct labor, and variable manufacturing overhead cosgts are considered product costs.Fixed manufacturing overhead costs are a product cost under absorption costing.Under variable costing, they are, instead, a period cost, and so they are expensed. Product cost of one widget using the variable costing method: Type of Cost Variable Costing Direct materials $10 Direct labor $5 Variable manufacturing overhead $12 Manufacturing cost per unit $27 question #5: What is the product cost of one widget using the full costing method? $10 Direct Materials + $5 Direct Labor + $12 Variable Manufacturing Overhead + Fixed Manufacturing Overhead ($600,000/100,000 produced = $6) $10 + $5 + $12 + $6 = $33 per widget using full costing method

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