Ollie’s Olive Oil began business in 2010, during which it produced 104,000 quart

ID: 2442291 • Letter: O

Question

Ollie’s Olive Oil began business in 2010, during which it produced 104,000 quarts of olive oil. In 2010, the company sold 100,000 quarts of olive oil. Costs incurred during the year were as follows:

Ingredients used $228,800

Direct labor 104,000

Variable overhead 197,600

Fixed overhead 98,800

Variable selling expenses 50,000

Fixed selling and administrative expenses 120,000

Total actual costs $799,200

a. What was the actual production cost per quart variable costing? Under absorption costing?

b. What was variable cost of goods sold for 2010 under variable costing?

c. What was cost of goods sold for 2010 under absorption costing?

d. What was the value of ending inventory under variable costing? Under absorption costing?

e. How much fixed overhead was charged to expense in 2010 under variable costing?

Under absorption costing?

Explanation / Answer

Absorption Costing: Absorption costing includes all manufacturing costs—including direct materials, direct labor and both variable and fixed manufacturing overhead

Variable costing: Variable costing includes only variable manufacturing costs – direct materials, direct labor, and variable manufacturing overhead.

Ingredients used

$228,800

Direct labor

$104,000

Variable overhead

$197,600

Fixed overhead

$98,800

Variable selling expenses

$50,000

Fixed selling and administrative expenses

$120,000

Total Actual costs

$799,200

(a) What was the actual production cost per quart variable costing? Under absorption costing?

Production per quarts of olive oil = 104,000

Company sold = 100,000 per quarts of olive oil

Actual production cost per quarts =[($228,800 + $104,000 + $197,600 + $98,800) / 104,000]

Actual production cost per quarts = [$629,200 / 104,000]

Actual production cost per quarts = $6.05

Actual production cost per quarts (under absorption) = $6.05

Actual production cost per quarts =[ ($228,800 + $104,000 + $197,600)/

104,000]

Actual production cost per quarts = [$530,400 / 104,000]

Actual production cost per quarts = $5.10

(b) What was variable cost of goods sold for 2010 under Variable costing?

Total Goods Sold by the company = 100,000 per quarts of olive oil

Cost per quarts (under variable costing) = $5.10

Cost of goods sold = $5.10 * 100,000

Cost of goods sold = $510,000

Total Goods sold by the company = 100,000 per quarts of olive oil

Variable cost per quarts (under absorption costing) = $6.05

Variable Cost of Goods Sold = [$6.05 * 100,000]

Variable cost of goods sold = $605,000