Great Bay Co. manufactures cordless telephones. During 2013, total costs associated with manufacturing 18,500 of the AB-2000 model (introduced this year) were as follows: $$\begin{array} { l r }
\text { Raw materials } & \$ 195,175 \
\text { Direct labor } & 115,625 \
\text { Variable manufacturing overhead } & 85,100 \
\text { Fixed manufacturing overhead } & 114,700
\end{array}$$ (a.) Calculate the cost per phone under both direct (or variable) costing and absorption costing.
(b.) If 2,800 of these phones were in finished goods inventory at the end of 2013, by how much and in what direction (higher or lower) would 2013 operating income be different under direct (or variable) costing than under absorption costing?
(c.) Express the phone cost in a cost formula. What does this formula suggest the total cost of making an additional 1,600 phones would be?

Question

Great Bay Co. manufactures cordless telephones. During 2013, total costs associated with manufacturing 18,500 of the AB-2000 model (introduced this year) were as follows: $$\begin{array} { l r } 
\text { Raw materials } & \$ 195,175 \
\text { Direct labor } & 115,625 \
\text { Variable manufacturing overhead } & 85,100 \
\text { Fixed manufacturing overhead } & 114,700
\end{array}$$ (a.) Calculate the cost per phone under both direct (or variable) costing and absorption costing.
(b.) If 2,800 of these phones were in finished goods inventory at the end of 2013, by how much and in what direction (higher or lower) would 2013 operating income be different under direct (or variable) costing than under absorption costing?
(c.) Express the phone cost in a cost formula. What does this formula suggest the total cost of making an additional 1,600 phones would be?

Quizplus · Accepted Answer

The Answer of Great Bay Co. manufactures cordless telephones. During 2013, total costs associated with manufacturing 18,500 of the AB-2000 model (introduced this year) were as follows: $$\begin{array} { l r } 
\text { Raw materials } & \$ 195,175 \
\text { Direct labor } & 115,625 \
\text { Variable manufacturing overhead } & 85,100 \
\text { Fixed manufacturing overhead } & 114,700
\end{array}$$ (a.) Calculate the cost per phone under both direct (or variable) costing and absorption costing.
(b.) If 2,800 of these phones were in finished goods inventory at the end of 2013, by how much and in what direction (higher or lower) would 2013 operating income be different under direct (or variable) costing than under absorption costing?
(c.) Express the phone cost in a cost formula. What does this formula suggest the total cost of making an additional 1,600 phones would be?

Great Bay Co (A) Calculate the Cost Per Phone Under Both Direct (Or