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ACC650 Week 7

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P8-21 Skinny Dippers, Inc. produces nonfat frozen yogurt. The product is sold in five-gallon
containers, which have the following price and variable costs.

Sales Price15
Direct material5
Direct labor2
Variable Overhead3

Budgeted fixed overhead in 20x1, the company's first year of operations, was 300,000
Planned and actual production was 150,000 five-gallon containers, of which
125,000 were sold. Skinny Dippers, Inc. incurred the following selling and administrative expenses.

Fixed  $50,000
Variable$1

Required:
1. Compute the product cost per container of frozen yogurt under
( a ) variable costing and (b ) absorption costing.
2. Prepare income statements for 20x1 using ( a ) absorption costing and ( b ) variable costing.
3. Reconcile the income reported under the two methods by listing the two key places where
the income statements differ.
4. Reconcile the income reported under the two methods using the shortcut method.

E7-20 Breakfast time Cereal Company manufactures two breakfast cereals in a joint process.
Cost and quantity information is as follows:

Joint CostCereal Quantity at Split Off PointSales Price Per Kilogram
$30,000Yummies 12,000 $2.00
Crummies 8,000 $2.50

Required:
Use the physical-units method to allocate the company’s joint production cost between
Yummies and Crummies.

E7-22 Refer to the data given in Exercise 17–20 . Breakfast time Cereal Company has an opportunity
to process its Crummies further into a mulch for ornamental shrubs. The additional
processing operation costs $0.50 per kilogram, and the mulch will sell for $3.50
per kilogram.

Data from E17-20
Joint CostCereal Quantity at Split Off PointSales Price Per Kilogram
$30,000Yummies 12,000 $2.00
Crummies 8,000 $2.50

Required:

1. Should Breakfast time’s management decide to process Crummies into the mulch? Why?
2. Suppose the company does process Crummies into the mulch. Use the net-realizable-value
method to allocate the joint production cost between the mulch and the Yummies.

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