Mini Home store manufactures toy dollhouses

| March 14, 2016

Mini Home store manufactures toy dollhouses that is sells for $45 each. The company uses a fixed manufacturing overhead rate of $3 per dollhouse. Assume all costs and production levels are exactly as planned. The following data are from Mini-Home’s first two months in business during 2014.

The following miscellaneous data has been collected for Sawyers Manufacturing Company for the most recent year-end:

Sep. Oct.

Sales 1,200 units 2,900 units

Production 2,700 2,700

Variable manufacturing cost per dollhouse $15 $15

Sales Commission per dollhouse 7 7

Total fixed MOH 8,100 8,100

Total fixed selling & admin costs 8,000 8,000

1. Compute the product cost per dollhouse produced under absorption costing and under variable costing

2. Prepare monthly income statements for Sep. and Oct., including columns for each month and a total column, using these costing methods: a. Absorption costing. b. Variable costing

3. Is operating income higher under absorption costing or variable costing in Sep.? In Oct? Explain the pattern of differences in operating income based on absorption costing verses variable costing.

4. Determine the balance in Finished Goods Inventory on Sep. 30 and Oct 31 under absorption costing and variable costing. Compare the differences in inventory balances and the differences in operating income. Explain the differences in inventory balances based on absorption costing versus variable costing

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