The Browning Company manufactures a single product;the standard costs per unit being variable manufacturing $8,fixed manufacturing $6.Selling and administrative costs are $2 per unit sold.The selling price is $20 per unit.Actual and budgeted fixed overhead is $900 000 for the year.Information about Browning's production activity for the year follows:
Assuming all information is provided above,the difference in profit between absorption and variable costing would be expected to be:

Question

Quizplus · Accepted Answer

To calculate the difference in profit between absorption and variable costing, we need to first calculate the number of units produced in the year. We can do this by dividing the total actual fixed overhead by the fixed overhead rate per unit:

Number of units produced = Actual fixed overhead / Fixed overhead rate per unit
Number of units produced = $900,000 / ($8 + $6)
Number of units produced = 75,000 units

Using this information, we can calculate the profit under absorption costing and variable costing:

Absorption Costing Profit = (Selling Price - Variable Costs per Unit) x Number of Units Sold - Fixed Manufacturing Overhead
Absorption Costing Profit = ($20 - $8 - $2) x 75,000 - $900,000
Absorption Costing Profit = $900,000

Variable Costing Profit = (Selling Price - Variable Costs per Unit) x Number of Units Sold - Variable Selling and Administrative Costs - Variable Manufacturing Overhead
Variable Costing Profit = ($20 - $8) x 75,000 - ($2 x 75,000) - ($8 x 75,000)
Variable Costing Profit = $525,000

The difference in profit between absorption and variable costing would be:

$900,000 - $525,000 = $375,000

Since fixed manufacturing overhead is only included in absorption costing, the difference in profit is equal to the fixed manufacturing overhead per unit multiplied by the difference in units produced between budgeted and actual. This is calculated as:

Difference in Profit = (Actual Units Produced - Budgeted Units Produced) x Fixed Manufacturing Overhead per Unit
Difference in Profit = (75,000 - 50,000) x $6
Difference in Profit = $150,000

Therefore, the best choice is C (25,000 x $6).

The Browning Company Manufactures a Single Product;the Standard Costs Per