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

Exercise 8

Variable versus absorption costing Williamson, Inc., manufactures digital voice recorders. During 2016, total costs associated with manufacturing 32,000 of the new EZ 9900 model (introduced this year) were as follows:

Required:
a. Calculate the cost per recorder under both variable costing and absorption costing.
b. If 4,200 of these recorders were in finished goods inventory at the end of 2016, by how much and in what direction (higher or lower) would 2016 cost of goods sold be different under variable costing than under absorption costing?
c. Express the digital voice recorder cost in a cost formula. What does this formula suggest the total cost of making an additional 500 recorders would be?