The following information refers to the Cowan Company's past year of operations.
*Common overhead totals $50,000 and is divided equally between the two products.
**Common fixed selling totals $60,000 and is divided equally between the two products.
Budgeted fixed overhead for the year of $180,000 equalled actual fixed overhead. Fixed overhead is assigned to products using a plant-wide rate based on expected direct labour hours, which were 150,000. The company had 5,000 of Product B in inventory at the beginning of the year. These units had the same unit cost as the units produced during the year.
-Variable cost of goods sold for the year is
A) $700,000.
B) $915,000.
C) $1,025,000.
D) $1,072,000.

Question

The following information refers to the Cowan Company's past year of operations.
    *Common overhead totals $50,000 and is divided equally between the two products.
**Common fixed selling totals $60,000 and is divided equally between the two products.
Budgeted fixed overhead for the year of $180,000 equalled actual fixed overhead. Fixed overhead is assigned to products using a plant-wide rate based on expected direct labour hours, which were 150,000. The company had 5,000 of Product B in inventory at the beginning of the year. These units had the same unit cost as the units produced during the year.
-Variable cost of goods sold for the year is
A) $700,000. 
B) $915,000. 
C) $1,025,000. 
D) $1,072,000.

Quizplus · Accepted Answer

To find the variable cost of goods sold, we need to subtract the fixed costs from the total cost of goods sold.

Fixed costs = actual fixed overheads = $180,000

Total cost of goods sold = Variable cost of goods sold + Fixed cost of goods sold

We have the following information:

- Budgeted fixed overhead for the year = actual fixed overhead for the year = $180,000
- Plant-wide rate = Fixed overheads / Expected direct labour hours 
= $180,000 / 150,000 hours 
= $1.20 per direct labour hour

To calculate the fixed cost of goods sold, we need to multiply the plant-wide rate by the actual direct labour hours used:

Fixed cost of goods sold = Plant-wide rate x Actual direct labour hours 
= $1.20 x 160,000 hours 
= $192,000

Now we can calculate the variable cost of goods sold:

Variable cost of goods sold = Total cost of goods sold - Fixed cost of goods sold 
= $1,107,000 - $192,000 
= $915,000

Therefore, the answer is (B) $915,000.

The Following Information Refers to the Cowan Company's Past Year