{"id":220439,"date":"2025-05-28T10:33:30","date_gmt":"2025-05-28T10:33:30","guid":{"rendered":"https:\/\/learnexams.com\/blog\/?p=220439"},"modified":"2025-05-28T10:33:32","modified_gmt":"2025-05-28T10:33:32","slug":"the-following-information-relates-to-charrds-operations-for-last-year","status":"publish","type":"post","link":"https:\/\/www.learnexams.com\/blog\/2025\/05\/28\/the-following-information-relates-to-charrds-operations-for-last-year\/","title":{"rendered":"The following information relates to Charrd’s operations for last year:"},"content":{"rendered":"\n
Charrd Corporation manufactures a gas operated barbecue grill. The following information relates to Charrd’s operations for last year: Unit product cost under absorption costing $55 per unit Fixed manufacturing overhead cost for the year $229,500 Fixed selling and administrative cost for the year $127,500 Units (grills) produced and sold 25,500 What is Charrd’s variable costing unit product cost?<\/p>\n\n\n\n
The Correct Answer and Explanation is:<\/mark><\/strong><\/p>\n\n\n\n
Correct Answer:<\/strong><\/h3>\n\n\n\n
To calculate Charrd Corporation\u2019s variable costing unit product cost<\/strong>, we need to remove fixed manufacturing overhead<\/strong> from the absorption costing unit product cost<\/strong>.<\/p>\n\n\n\n
Under absorption costing<\/strong>, fixed manufacturing overhead<\/strong> is included<\/strong> in the unit product cost. Therefore: Absorption costing unit product cost=Variable manufacturing cost per unit+Allocated fixed manufacturing overhead per unit\\text{Absorption costing unit product cost} = \\text{Variable manufacturing cost per unit} + \\text{Allocated fixed manufacturing overhead per unit}<\/p>\n\n\n\n
Step 2: Determine fixed overhead per unit<\/h4>\n\n\n\n
Charrd produced and sold 25,500 units<\/strong>, and the total fixed manufacturing overhead<\/strong> is $229,500<\/strong>. Fixed manufacturing overhead per unit=229,50025,500=9 per unit\\text{Fixed manufacturing overhead per unit} = \\frac{229,500}{25,500} = 9 \\text{ per unit}<\/p>\n\n\n\n
Step 3: Calculate variable costing unit product cost<\/h4>\n\n\n\n
Variable costing unit product cost=55\u22129=46 per unit\\text{Variable costing unit product cost} = 55 – 9 = \\boxed{46 \\text{ per unit}}<\/p>\n\n\n\n
\n\n\n\n
Explanation<\/strong><\/h3>\n\n\n\n
Variable costing and absorption costing are two different methods of valuing inventory and calculating cost of goods sold. The primary distinction between the two lies in how they treat fixed manufacturing overhead<\/strong>.<\/p>\n\n\n\n
Under absorption costing<\/strong> (also known as full costing), all manufacturing costs<\/strong> are assigned to units of product. This includes direct materials<\/strong>, direct labor<\/strong>, variable manufacturing overhead<\/strong>, and fixed manufacturing overhead<\/strong>. Therefore, each unit “absorbs” a share of fixed overhead.<\/p>\n\n\n\n
In contrast, variable costing<\/strong> only includes the variable manufacturing costs<\/strong> (direct materials, direct labor, and variable manufacturing overhead) in the unit product cost. Fixed manufacturing overhead is treated as a period expense<\/strong>, meaning it is expensed in full in the period incurred, rather than allocated to individual units of production.<\/p>\n\n\n\n
In this case, Charrd’s absorption costing unit product cost was $55<\/strong>, which includes both variable costs and an allocation of fixed manufacturing overhead. Since the total fixed manufacturing overhead was $229,500<\/strong>, and 25,500 units were produced and sold, the fixed overhead cost per unit is $9<\/strong>. By subtracting this from the absorption cost, we determine the variable costing unit product cost to be $46<\/strong>.<\/p>\n\n\n\n
Variable costing is often used internally by management for decision-making because it clearly separates variable and fixed costs, helping managers understand the impact of production volume on profitability. However, for external reporting, companies must use absorption costing in accordance with GAAP or IFRS.<\/p>\n\n\n\n<\/figure>\n","protected":false},"excerpt":{"rendered":"
Charrd Corporation manufactures a gas operated barbecue grill. The following information relates to Charrd’s operations for last year:Unit product cost under absorption costing $55 per unitFixed manufacturing overhead cost for the year $229,500Fixed selling and administrative cost for the year $127,500Units (grills) produced and sold 25,500What is Charrd’s variable costing unit product cost? The Correct […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[25],"tags":[],"class_list":["post-220439","post","type-post","status-publish","format-standard","hentry","category-exams-certification"],"_links":{"self":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/220439","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/comments?post=220439"}],"version-history":[{"count":0,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/220439\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/media?parent=220439"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/categories?post=220439"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/tags?post=220439"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
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