Skinny Dippers, Inc. produces nonfat frozen yogurt. The product is sold in five-gallon containers, which have the following price and variable costs.
Sales price …………………………………………$15
Direct material …………………………………….5
Direct labor …………………………………………..2
Variable overhead ………………………………..3
Budgeted fixed overhead in 20×1, the company’s first year of operations, was $300,000. Planned and actual production was 150,000 five-gallon containers, of which 125,000 were sold. Skinny Dippers, Inc. incurred the following selling and administrative expenses.
Fixed ……………………………………………$50,000 for the year
Variable ……………………………………….$1 per container sold
Required:
- Compute the product cost per container of frozen yogurt under ( a ) variable costing and ( b ) absorption costing.
- Prepare income statements for 20×1 using ( a ) absorption costing and ( b ) variable costing.
- Reconcile the income reported under the two methods by listing the two key places where the income statements differ.
- Reconcile the income reported under the two methods using the shortcut method.
Exercise 17–20
Breakfast time Cereal Company manufactures two breakfast cereals in a joint process. Cost and quantity information is as follows:
Joint Cost Cereal Quantity at Split-Off Point Sales Price per Kilogram
$30,000 Yummies ………..12,000 kilograms ……………………..$2.00
Crummies ……………….. 8,000 kilograms ……………….2.50
Required: Use the physical-units method to allocate the company’s joint production cost between Yummies and Crummies.
Exercise 17–21
Refer to the data given in the preceding exercise.
Required: Use the relative-sales-value method to allocate Breakfasttime Cereal Company’s joint production cost between Yummies and Crummies.
Exercise 17–22
Refer to the data given in Exercise 17–20 . Breakfasttime Cereal Company has an opportunity to process its Crummies further into a mulch for ornamental shrubs. The additional processing operation costs $.50 per
Required:
- Should Breakfasttime’s management decide to process Crummies into the mulch? Why?
- Suppose the company does process Crummies into the mulch. Use the net-realizable-value method to allocate the joint production cost between the mulch and the Yummies.kilogram, and the mulch will sell for $3.50 per kilogram.