Accounting: What the Numbers Mean 11th Edition by Wayne McManus,Daniel Viele,David Marshall

Exercise 6

Variable versus absorption costing TroutPro Co. manufactures fishing equipment. During 2016, total costs associated with manufacturing 15,000 fly-cast fishing rods (a new product introduced this year) were as follows:

Required:
a. Calculate the cost per fishing rod under both variable costing and absorption costing.
b. If 300 of these fishing rods 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 variable costing than under absorption costing?
c. Express the fishing rod cost in a cost formula. What does this formula suggest the total cost of making an additional 200 fishing rods would be?