Answered: White Water Rafting Company…

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter10: Short-term Decision Making

Section: Chapter Questions

Problem 6PA: Gent Designs requires three units of part A for every unit of Al that it produces. Currently, part A...

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Question

White Water Rafting Company manufactures kayaks, which sell for $615 each. The variable costs of production (per unit) are as follows:


Direct Material	$	220
Direct labor		135
Variable manufacturing overhead		95

Budgeted fixed overhead in 20x1 was $343,000 and budgeted production was 49,000 kayaks. The year’s actual production was 49,000 units, of which 39,500 were sold. Variable selling and administrative costs were $5 per unit sold; fixed selling and administrative costs were $69,000.

Required:
A. Calculate the product cost per kayak under (a) absorption costing and (b) variable costing.
B. Prepare operating income statements for the year using (a) absorption costing and (b) variable costing.
C. Reconcile reported operating income under the two methods using the shortcut method.

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