65 PSS Company experienced the following costs in 2011: Direct materials Direct
ID: 2403486 • Letter: 6
Question
65 PSS Company experienced the following costs in 2011: Direct materials Direct labor Manufacturing Overhead Costs $4.00/unit $8.00/unit Variable Fixed $2.00/unit $168,000 There are no beginning inventories. During the year the company manufactured 60,000 units and sold 55,000 units. If profit for the year was $124,000 using full costing, what amount would the profit be if the company used variable costing? A. $138,000 B. $124,000 C. $110,000 D. More information is needed to determine the answerExplanation / Answer
Correct Answer (c ) $110000
Profit as per Full Cost Method
$ 124,000.00
Less: Value of Finished Stock
$ 14,000.00
Profit as per Variable Costing.
$ 110,000.00
This is Because In variable costing Fixed manufacturing overheads are allocated on goods sold and not on Goods produced while in Full cost method a portion of fixed cost is set apart as WIP inventory as Fixed manufacturing cost is distributed on all goods produced.
Full Costing is another name for Absorbtion costing.
Correct Answer (c ) $110000
Profit as per Full Cost Method
$ 124,000.00
Less: Value of Finished Stock
$ 14,000.00
Profit as per Variable Costing.
$ 110,000.00
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