Burrito-Blast makes bean and cheese burritos that it sells to grocery stores. The burritos sell for $1 each. Burrito-Blast had beginning inventory of $20,000 on June 1 for 80,000 burritos. During June the company produced 500,000 burritos. June production costs are as follows:

-The company's June 30 ending inventory consists of 20,000 burritos. The employees receive a 5% salary bonus if they can keep per unit production cost under $.30 per burrito. Under which method would the employees receive a bonus?

Question

Burrito-Blast makes bean and cheese burritos that it sells to grocery stores. The burritos sell for $1 each. Burrito-Blast had beginning inventory of $20,000 on June 1 for 80,000 burritos. During June the company produced 500,000 burritos. June production costs are as follows:

-The company's June 30 ending inventory consists of 20,000 burritos. The employees receive a 5% salary bonus if they can keep per unit production cost under $.30 per burrito. Under which method would the employees receive a bonus?

Quizplus · Accepted Answer

Under absorption costing, fixed manufacturing costs are included in the cost of goods sold, which would result in a higher per unit production cost. Under variable costing, only variable manufacturing costs are included in the cost of goods sold, which would result in a lower per unit production cost. Therefore, the employees would receive a bonus under variable costing.

Burrito-Blast Makes Bean and Cheese Burritos That It Sells to Grocery