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E6-19 Creative Crates Co. produces

Price: $1.99


Creative Crates Co. produces wooden crates used for shipping products by ocean
liner. In 2014, Creative incurred the following costs.

Wood used in crate production   $54,000
Nails (considered insignificant and a variable expense)   $350
Direct labor   $38,000
Utilities for the plant:
$1,500 each month,
plus $0.40 for each kilowatt-hour used each month
Rent expense for the plant for the year  $21,400

Assume Creative used an average 500 kilowatt-hours each month over the past year.

Instructions
(a) What is Creative’s total manufacturing cost if it uses a variable costing approach?
(b) What is Creative’s total manufacturing cost if it uses an absorption costing approach?
(c) What accounts for the difference in manufacturing costs between these two costing
approaches?

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