Hasselback, Inc., produced 175,000 units and prepared the following income repor
ID: 2455972 • Letter: H
Question
Hasselback, Inc., produced 175,000 units and prepared the following income report using absorption costing (numbers in $1,000s):
Sales (100,000 Units)
$15,000
Less Cost of Goods Sold
Direct Materials
$1,200
Direct Labor
300
Unit-related overhead
900
Other overhead
4,000
6,400
Gross Margin
8,600
Less other operating costs
Variable Selling & Administrative
600
Fixed Selling & Administrative
2,000
Profit
$6,000
Required:
Determine Hasselback’s profit using unit-variable costing.
Determine Hasselback’s profit using throughput costing.
Which method do you think presents the most reliable picture of current earnings? Why?
Sales (100,000 Units)
$15,000
Less Cost of Goods Sold
Direct Materials
$1,200
Direct Labor
300
Unit-related overhead
900
Other overhead
4,000
6,400
Gross Margin
8,600
Less other operating costs
Variable Selling & Administrative
600
Fixed Selling & Administrative
2,000
Profit
$6,000
Explanation / Answer
Profit using unit variable costing
Profit using throughput costing
Variable costing is the most reliable picture of current earnings since it segregates cost into fixed and variable.Under absorption even the fixed costs is part of cost of goods sold and in throughput except materials all other costs are considered period expense.
Sale $15,000 Less: Cost of goodsl sold Direct materials $1200 direct labor 300 Variable overhead 900 $2400 Vaiable selling 600 $3,000 Contribution margin $9,000 Less: Fixed expenses: Fixed overhead + Fixed selling $6,000 Net income $6,000Related Questions
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