Great Bay Co. manufactures cordless telephones. During 2016, total costs associated with manufacturing 18,500 of the AB-2000 model (introduced this year) were as follows:
(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 2016, by how much and in what direction (higher or lower) would 2016 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

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The Answer of Great Bay Co. manufactures cordless telephones. During 2016, total costs associated with manufacturing 18,500 of the AB-2000 model (introduced this year) were as follows:
(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 2016, by how much and in what direction (higher or lower) would 2016 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?