PlayCraft Co. manufactures toy boats. During 2019, total costs incurred in making 54,000 toy boats included $189,000 of fixed manufacturing overhead. The total absorption cost per toy boat was $28.50.(a.) Calculate the variable cost per toy boat.(b.) The ending inventory of toy boats was 11,600 units higher at the end of 2019 than at the beginning of the year. By how much and in what direction (higher or lower) would cost of goods sold for 2019 be different under direct costing than under variable costing?(c.) Express the toy boat cost in a cost formula. What does this formula suggest the total cost of making an additional 5,800 toy boats would be?
What will be an ideal response?
(a.)
| Absorption cost per toy boat | $ | 28.50 | |
| Less: Fixed manufacturing overhead per toy boat ($189,000 / 54,000) | (3.50 | ) | |
| Variable cost per toy boat | $ | 25.00 |
11,600 toy boats × $3.50 = $40,600 less cost released to the income statement in 2019 under absorption costing than under variable costing. Thus, cost of goods sold under variable costing will be $40,600 higher than under absorption.
(c.)
Total cost = Fixed cost + (variable rate × activity)
Total cost = $189,000 + ($25.00 × number of toy boats)
The cost of making 5,800 more toy boats = 5,800 × $25.00 = $145,000.
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