Essay Questions
143. Lehne Company, which has only one product, has provided the following data concerning its most recent month of operations:
The company produces the same number of units every month, although the sales in units vary from month to month. The company's variable costs per unit and total fixed costs have been constant from month to month.
Required:
What is the unit product cost for the month under variable costing?
What is the unit product cost for the month under absorption costing?
Prepare an income statement for the month using the contribution format and the variable costing method.
Prepare an income statement for the month using the absorption costing method.
Reconcile the variable costing and absorption costing net operating incomes for the month.
Ans:
a. & b. Unit product costs
|
Variable costing:
|
|
|
Direct materials
|
$13
|
|
Direct labor
|
49
|
|
Variable manufacturing overhead
|
6
|
|
Unit product cost
|
$68
|
|
|
|
|
Absorption costing:
|
|
|
Direct materials
|
$13
|
|
Direct labor
|
49
|
|
Variable manufacturing overhead
|
6
|
|
Fixed manufacturing overhead
|
31
|
|
Unit product cost
|
$99
|
c. & d. Income statements
|
Variable costing income statement
|
|
|
|
Sales
|
|
$336,000
|
|
Less variable expenses:
|
|
|
|
Variable cost of goods sold:
|
|
|
|
Beginning inventory
|
$ 34,000
|
|
|
Add variable manufacturing costs
|
176,800
|
|
|
Goods available for sale
|
210,800
|
|
|
Less ending inventory
|
6,800
|
|
|
Variable cost of goods sold
|
204,000
|
|
|
Variable selling and administrative
|
30,000
|
234,000
|
|
Contribution margin
|
|
102,000
|
|
Less fixed expenses:
|
|
|
|
Fixed manufacturing overhead
|
80,600
|
|
|
Fixed selling and administrative
|
15,000
|
95,600
|
|
Net operating income
|
|
$ 6,400
|
|
Absorption costing income statement
|
|
|
|
Sales
|
|
$336,000
|
|
Cost of goods sold:
|
|
|
|
Beginning inventory
|
$ 49,500
|
|
|
Add cost of goods manufactured
|
257,400
|
|
|
Goods available for sale
|
306,900
|
|
|
Less ending inventory
|
9,900
|
297,000
|
|
Gross margin
|
|
39,000
|
|
Selling and administrative expenses expenses:
|
|
|
|
Variable selling and administrative
|
30,000
|
|
|
Fixed selling and administrative
|
15,000
|
45,000
|
|
Net operating income
|
|
$( 6,000)
|
e. Reconciliation
|
Variable costing net operating income
|
$ 6,400
|
|
Deduct fixed manufacturing overhead costs released from inventory under absorption costing
|
(12,400)
|
|
Absorption costing net operating income
|
$(6,000)
|
AICPA FN: Reporting, Measurement LO: 1,2,3 Level: Hard
144. Maffei Company, which has only one product, has provided the following data concerning its most recent month of operations:
|
Selling price
|
$138
|
|
|
|
|
Units in beginning inventory
|
0
|
|
Units produced
|
7,200
|
|
Units sold
|
7,000
|
|
Units in ending inventory
|
200
|
|
|
|
|
Variable costs per unit:
|
|
|
Direct materials
|
$42
|
|
Direct labor
|
$32
|
|
Variable manufacturing overhead
|
$1
|
|
Variable selling and administrative
|
$8
|
|
|
|
|
Fixed costs:
|
|
|
Fixed manufacturing overhead
|
$280,800
|
|
Fixed selling and administrative
|
$98,000
|
Required:
What is the unit product cost for the month under variable costing?
What is the unit product cost for the month under absorption costing?
Prepare an income statement for the month using the contribution format and the variable costing method.
Prepare an income statement for the month using the absorption costing method.
Reconcile the variable costing and absorption costing net operating incomes for the month.
Ans:
a. & b. Unit product costs
|
Variable costing:
|
|
|
Direct materials
|
$42
|
|
Direct labor
|
32
|
|
Variable manufacturing overhead
|
1
|
|
Unit product cost
|
$75
|
|
|
|
|
Absorption costing:
|
|
|
Direct materials
|
$ 42
|
|
Direct labor
|
32
|
|
Variable manufacturing overhead
|
1
|
|
Fixed manufacturing overhead
|
39
|
|
Unit product cost
|
$114
|
c. & d. Income statements
|
Variable costing income statement
|
|
|
|
Sales
|
|
$966,000
|
|
Less variable expenses:
|
|
|
|
Variable cost of goods sold:
|
|
|
|
Beginning inventory
|
$ 0
|
|
|
Add variable manufacturing costs
|
540,000
|
|
|
Goods available for sale
|
540,000
|
|
|
Less ending inventory
|
15,000
|
|
|
Variable cost of goods sold
|
525,000
|
|
|
Variable selling and administrative
|
56,000
|
581,000
|
|
Contribution margin
|
|
385,000
|
|
Less fixed expenses:
|
|
|
|
Fixed manufacturing overhead
|
280,800
|
|
|
Fixed selling and administrative
|
98,000
|
378,800
|
|
Net operating income
|
|
$ 6,200
|
|
Absorption costing income statement
|
|
|
|
Sales
|
|
$966,000
|
|
Cost of goods sold:
|
|
|
|
Beginning inventory
|
$ 0
|
|
|
Add cost of goods manufactured
|
820,800
|
|
|
Goods available for sale
|
820,800
|
|
|
Less ending inventory
|
22,800
|
798,000
|
|
Gross margin
|
|
168,000
|
|
Selling and administrative expenses expenses:
|
|
|
|
Variable selling and administrative
|
56,000
|
|
|
Fixed selling and administrative
|
98,000
|
154,000
|
|
Net operating income
|
|
$ 14,000
|
e. Reconciliation
|
Variable costing net operating income
|
$ 6,200
|
|
Add fixed manufacturing overhead costs deferred in inventory under absorption costing
|
7,800
|
|
Absorption costing net operating income
|
$14,000
|
AICPA FN: Reporting, Measurement LO: 1,2,3
145. The Dean Company produces and sells a single product. The following data refer to the year just completed:
|
Beginning inventory
|
0
|
|
Units produced
|
20,000
|
|
Units sold
|
19,000
|
|
|
|
|
Selling price per unit
|
$350
|
|
Selling and administrative expenses:
|
|
|
Variable per unit
|
$10
|
|
Fixed (total)
|
$225,000
|
|
Manufacturing costs:
|
|
|
Direct materials cost per unit
|
$190
|
|
Direct labor cost per unit
|
$40
|
|
Variable manufacturing overhead cost per unit
|
$25
|
|
Fixed manufacturing overhead (total)
|
$250,000
|
Assume that direct labor is a variable cost.
Required:
Compute the cost of a single unit of product under both the absorption costing and variable costing approaches.
Prepare an income statement for the year using absorption costing.
Prepare an income statement for the year using variable costing.
Reconcile the absorption costing and variable costing net operating income figures in (b) and (c) above.
Ans:
a.
|
Cost per unit under absorption costing:
|
|
|
Direct materials
|
$190.00
|
|
Direct labor
|
40.00
|
|
Variable overhead
|
25.00
|
|
Fixed overhead ($250,000 / 20,000)
|
12.50
|
|
Total cost per unit
|
$267.50
|
|
|
|
|
Cost per unit under variable costing:
|
|
|
Direct materials
|
$190.00
|
|
Direct labor
|
40.00
|
|
Variable overhead
|
25.00
|
|
Total cost per unit
|
$255.00
|
b.
|
Absorption costing income statement:
|
|
|
|
Sales
|
|
$6,650,000
|
|
Cost of goods sold:
|
|
|
|
Beginning inventory
|
$ 0
|
|
|
Add cost of goods manufactured (20,000 @ $267.50)
|
5,350,000
|
|
|
Cost of goods available
|
5,350,000
|
|
|
Less ending inventory (1,000 @ $267.50)
|
267,500
|
5,082,500
|
|
Gross profit
|
|
1,567,500
|
|
Selling and administrative expenses expenses:
|
|
|
|
[($10 × 19,000) + $225,000]
|
|
415,000
|
|
Net operating income
|
|
$1,152,500
|
c.
|
Variable costing income statement:
|
|
|
|
Sales
|
|
$6,650,000
|
|
Cost of goods sold:
|
|
|
|
Beginning inventory
|
$ 0
|
|
|
Cost of goods manufactured (20,000 @ $255)
|
5,100,000
|
|
|
Cost of goods available
|
5,100,000
|
|
|
Less ending inventory (1,000 @ $255)
|
255,000
|
|
|
Variable cost of goods sold
|
4,845,000
|
|
|
Variable selling and administrative expenses:
|
|
|
|
(19,000 @ $10)
|
190,000
|
5,035,000
|
|
Contribution margin
|
|
1,615,000
|
|
Less fixed expenses:
|
|
|
|
Manufacturing overhead
|
250,000
|
|
|
Selling and administrative
|
225,000
|
475,000
|
|
Net operating income
|
|
$1,140,000
|
d.
|
Net operating income under variable costing
|
$1,140,000
|
|
Add fixed manufacturing overhead costs deferred in inventory under absorption costing (1,000 @ $12.50)
|
12,500
|
|
Net operating income under absorption costing
|
$1,152,500
|
AICPA FN: Reporting, Measurement LO: 1,2,3
146. Pacht Company, which has only one product, has provided the following data concerning its most recent month of operations:
|
Selling price
|
$121
|
|
|
|
|
Units in beginning inventory
|
400
|
|
Units produced
|
6,800
|
|
Units sold
|
6,900
|
|
Units in ending inventory
|
300
|
|
|
|
|
Variable costs per unit:
|
|
|
Direct materials
|
$35
|
|
Direct labor
|
$36
|
|
Variable manufacturing overhead
|
$3
|
|
Variable selling and administrative
|
$4
|
|
|
|
|
Fixed costs:
|
|
|
Fixed manufacturing overhead
|
$197,200
|
|
Fixed selling and administrative
|
$96,600
|
The company produces the same number of units every month, although the sales in units vary from month to month. The company's variable costs per unit and total fixed costs have been constant from month to month.
Required:
What is the unit product cost for the month under variable costing?
Prepare an income statement for the month using the contribution format and the variable costing method.
Without preparing an income statement, determine the absorption costing net operating income for the month. (Hint: Use the reconciliation method.)
Ans:
a.
|
Variable costing unit product cost
|
|
|
Direct materials
|
$35
|
|
Direct labor
|
36
|
|
Variable manufacturing overhead
|
3
|
|
Unit product cost
|
$74
|
b.
|
Variable costing income statement
|
|
|
|
Sales
|
|
$834,900
|
|
Less variable expenses:
|
|
|
|
Variable cost of goods sold:
|
|
|
|
Beginning inventory
|
$ 29,600
|
|
|
Add variable manufacturing costs
|
503,200
|
|
|
Goods available for sale
|
532,800
|
|
|
Less ending inventory
|
22,200
|
|
|
Variable cost of goods sold
|
510,600
|
|
|
Variable selling and administrative
|
27,600
|
538,200
|
|
Contribution margin
|
|
296,700
|
|
Less fixed expenses:
|
|
|
|
Fixed manufacturing overhead
|
197,200
|
|
|
Fixed selling and administrative
|
96,600
|
293,800
|
|
Net operating income
|
|
$ 2,900
|
c.
|
Computation of absorption costing net operating income
|
|
|
Fixed manufacturing overhead per unit
|
$29.00
|
|
Change in inventories (units)
|
(100)
|
|
|
|
|
Variable costing net operating income
|
$2,900
|
|
Deduct fixed manufacturing overhead costs released from inventory under absorption costing
|
(2,900)
|
|
Absorption costing net operating income
|
$ 0
|
AICPA FN: Reporting, Measurement LO: 1,2,3 Level: Hard
147. Qin Company, which has only one product, has provided the following data concerning its most recent month of operations:
|
Selling price
|
$77
|
|
|
|
|
Units in beginning inventory
|
0
|
|
Units produced
|
6,700
|
|
Units sold
|
6,500
|
|
Units in ending inventory
|
200
|
|
|
|
|
Variable costs per unit:
|
|
|
Direct materials
|
$27
|
|
Direct labor
|
$13
|
|
Variable manufacturing overhead
|
$5
|
|
Variable selling and administrative
|
$7
|
|
|
|
|
Fixed costs:
|
|
|
Fixed manufacturing overhead
|
$100,500
|
|
Fixed selling and administrative
|
$58,500
|
Required:
What is the unit product cost for the month under variable costing?
Prepare an income statement for the month using the contribution format and the variable costing method.
Without preparing an income statement, determine the absorption costing net operating income for the month. (Hint: Use the reconciliation method.)
Ans:
a.
|
Variable costing unit product cost
|
|
|
Direct materials
|
$27
|
|
Direct labor
|
13
|
|
Variable manufacturing overhead
|
5
|
|
Unit product cost
|
$45
|
b.
|
Variable costing income statement
|
|
|
|
Sales
|
|
$500,500
|
|
Less variable expenses:
|
|
|
|
Variable cost of goods sold:
|
|
|
|
Beginning inventory
|
$ 0
|
|
|
Add variable manufacturing costs
|
301,500
|
|
|
Goods available for sale
|
301,500
|
|
|
Less ending inventory
|
9,000
|
|
|
Variable cost of goods sold
|
292,500
|
|
|
Variable selling and administrative
|
45,500
|
338,000
|
|
Contribution margin
|
|
162,500
|
|
Less fixed expenses:
|
|
|
|
Fixed manufacturing overhead
|
100,500
|
|
|
Fixed selling and administrative
|
58,500
|
159,000
|
|
Net operating income
|
|
$ 3,500
|
c.
|
Computation of absorption costing net operating income
|
|
|
Fixed manufacturing overhead per unit
|
$15.00
|
|
Change in inventories (units)
|
200
|
|
|
|
|
Variable costing net operating income
|
$3,500
|
|
Add fixed manufacturing overhead costs deferred in inventory under absorption costing
|
3,000
|
|
Absorption costing net operating income
|
$6,500
|
AICPA FN: Reporting, Measurement LO: 1,2,3
148. Olguin Corporation produces a single product and has the following cost structure:
|
Number of units produced each year
|
4,000
|
|
Variable costs per unit:
|
|
|
Direct materials
|
$15
|
|
Direct labor
|
$13
|
|
Variable manufacturing overhead
|
$7
|
|
Variable selling and administrative expenses
|
$5
|
|
Fixed costs per year:
|
|
|
Fixed manufacturing overhead
|
$328,000
|
|
Fixed selling and administrative expenses
|
$324,000
|
Required:
Compute the unit product cost under absorption costing. Show your work!
Compute the unit product cost under variable costing. Show your work!
Ans:
a.
|
Absorption Costing:
|
|
|
Direct materials
|
$ 15
|
|
Direct labor
|
13
|
|
Variable manufacturing overhead
|
7
|
|
Total variable production cost
|
35
|
|
Fixed manufacturing overhead ($328,000/4,000 units of product)
|
82
|
|
Unit product cost
|
$117
|
|
|
|
b.
|
Variable Costing:
|
|
|
Direct materials
|
$15
|
|
Direct labor
|
13
|
|
Variable manufacturing overhead
|
7
|
|
Unit product cost
|
$35
|
149. Quates Corporation produces a single product and has the following cost structure:
|
Number of units produced each year
|
3,000
|
|
Variable costs per unit:
|
|
|
Direct materials
|
$27
|
|
Direct labor
|
$96
|
|
Variable manufacturing overhead
|
$1
|
|
Variable selling and administrative expenses
|
$4
|
|
Fixed costs per year:
|
|
|
Fixed manufacturing overhead
|
$219,000
|
|
Fixed selling and administrative expenses
|
$153,000
|
Required:
Compute the unit product cost under absorption costing. Show your work!
Ans:
|
Direct materials
|
$ 27
|
|
Direct labor
|
96
|
|
Variable manufacturing overhead
|
1
|
|
Total variable production cost
|
124
|
|
Fixed manufacturing overhead ($219,000/3,000 units of product)
|
73
|
|
Unit product cost
|
$197
|
150. Davitt Corporation produces a single product and has the following cost structure:
|
Number of units produced each year
|
1,000
|
|
Variable costs per unit:
|
|
|
Direct materials
|
$57
|
|
Direct labor
|
$20
|
|
Variable manufacturing overhead
|
$2
|
|
Variable selling and administrative expenses
|
$3
|
|
Fixed costs per year:
|
|
|
Fixed manufacturing overhead
|
$88,000
|
|
Fixed selling and administrative expenses
|
$24,000
|
Required:
Compute the unit product cost under variable costing. Show your work!
Ans:
|
Direct materials
|
$57
|
|
Direct labor
|
20
|
|
Variable manufacturing overhead
|
2
|
|
Unit product cost
|
$79
|
151. Murphy Inc., which produces a single product, has provided the following data for its most recent month of operation:
|
Number of units produced
|
7,000
|
|
Variable costs per unit:
|
|
|
Direct materials
|
$37
|
|
Direct labor
|
$43
|
|
Variable manufacturing overhead
|
$5
|
|
Variable selling and administrative expenses
|
$1
|
|
Fixed costs:
|
|
|
Fixed manufacturing overhead
|
$84,000
|
|
Fixed selling and administrative expenses
|
$119,000
|
The company had no beginning or ending inventories.
Required:
Compute the unit product cost under absorption costing. Show your work!
Compute the unit product cost under variable costing. Show your work!
Ans:
a.
|
Absorption costing:
|
|
|
Direct materials
|
$37
|
|
Direct labor
|
43
|
|
Variable manufacturing overhead
|
5
|
|
Total variable production cost
|
85
|
|
Fixed manufacturing overhead ($84,000/7,000 units of product)
|
12
|
|
Unit product cost
|
$97
|
|
|
|
b.
|
Variable costing:
|
|
|
Direct materials
|
$37
|
|
Direct labor
|
43
|
|
Variable manufacturing overhead
|
5
|
|
Unit product cost
|
$85
|
152. Vancott Inc., which produces a single product, has provided the following data for its most recent month of operation:
|
Number of units produced
|
6,000
|
|
Variable costs per unit:
|
|
|
Direct materials
|
$93
|
|
Direct labor
|
$58
|
|
Variable manufacturing overhead
|
$1
|
|
Variable selling and administrative expenses
|
$1
|
|
Fixed costs:
|
|
|
Fixed manufacturing overhead
|
$192,000
|
|
Fixed selling and administrative expenses
|
$348,000
|
The company had no beginning or ending inventories.
Required:
Compute the unit product cost under absorption costing. Show your work!
Ans:
|
Direct materials
|
$ 93
|
|
Direct labor
|
58
|
|
Variable manufacturing overhead
|
1
|
|
Total variable production cost
|
152
|
|
Fixed manufacturing overhead ($192,000/6,000 units of product)
|
32
|
|
Unit product cost
|
$184
|
153. Schlenz Inc., which produces a single product, has provided the following data for its most recent month of operation:
|
Number of units produced
|
6,000
|
|
Variable costs per unit:
|
|
|
Direct materials
|
$12
|
|
Direct labor
|
$34
|
|
Variable manufacturing overhead
|
$4
|
|
Variable selling and administrative expenses
|
$2
|
|
Fixed costs:
|
|
|
Fixed manufacturing overhead
|
$486,000
|
|
Fixed selling and administrative expenses
|
$522,000
|
The company had no beginning or ending inventories.
Required:
Compute the unit product cost under variable costing. Show your work!
Ans:
|
Direct materials
|
$12
|
|
Direct labor
|
34
|
|
Variable manufacturing overhead
|
4
|
|
Unit product cost
|
$50
|
154. Miller Company produces a single product. The company had the following results for its first two years of operation:
|
|
Year 1
|
Year 2
|
|
Sales
|
$1,200,000
|
$1,200,000
|
|
Cost of goods sold
|
800,000
|
680,000
|
|
Gross margin
|
400,000
|
520,000
|
|
Selling and administrative expenses
|
300,000
|
300,000
|
|
Net operating income
|
$ 100,000
|
$ 220,000
|
In Year 1, the company produced and sold 40,000 units of its only product; in Year 2, the company again sold 40,000 units, but increased production to 50,000 units. The company's variable production cost is $5 per unit and its fixed manufacturing overhead cost is $600,000 a year. Fixed manufacturing overhead costs are applied to the product on the basis of each year's unit production (i.e., a new fixed overhead rate is computed each year). Variable selling and administrative expenses are $2 per unit sold.
Required:
Compute the unit product cost for each year under absorption costing and under variable costing.
Prepare an income statement for each year, using the contribution approach with variable costing.
Reconcile the variable costing and absorption costing income figures for each year.
Explain why the net operating income for Year 2 under absorption costing was higher than the net operating income for Year 1, although the same number of units were sold in each year.
Ans:
a.
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Cost per unit under absorption costing:
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Year 1
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Year 2
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Variable production cost per unit
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$ 5
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$ 5
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Fixed manufacturing overhead cost:
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($600,000/40,000)
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15
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($600,000/50,000)
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12
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Unit product cost
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$20
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$17
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Cost per unit under variable costing:
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Year 1
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Year 2
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Variable production cost per unit
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$5
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$5
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b. Income statements for each year under variable costing:
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Year 1
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Year 2
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Sales
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$1,200,000
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$1,200,000
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Cost of goods sold ($5 × 40,000)
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200,000
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200,000
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Variable selling and administrative expense
($2 × 40,000)
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80,000
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80,000
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Contribution margin
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920,000
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920,000
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Fixed expenses:
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Fixed manufacturing overhead
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600,000
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600,000
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Fixed selling and administrative expense
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220,000
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220,000
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Net operating income
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$ 100,000
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$ 100,000
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c. Reconciliation of absorption costing and variable costing net operating incomes:
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Year 1
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Year 2
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Net operating income under variable costing
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$100,000
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$100,000
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Fixed manufacturing overhead deferred in (released from) inventory: Year 2 (10,000 units × $12 per unit)
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120,000
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Net operating income under absorption costing
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$100,000
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$220,000
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The increase in production in Year 2, in the face of level sales, caused a buildup of inventory and a deferral of a portion of the overhead costs of Year 2 to the next year. This deferral of cost relieved Year 2 of $120,000 of fixed manufacturing overhead. Income for Year 2 was $120,000 higher than income of Year 1, even though the same number of units was sold each year. By increasing production and building up inventory, the company was able to increase profits without increasing sales. This is major criticism of the absorption costing approach.
LO: 2,3,4
155. Neukirchen Company, which has only one product, has provided the following data concerning its most recent month of operations:
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Selling price
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$140
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Units in beginning inventory
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300
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Units produced
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4,300
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Units sold
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4,500
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Units in ending inventory
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100
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Variable costs per unit:
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Direct materials
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$25
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Direct labor
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$51
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Variable manufacturing overhead
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$7
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Variable selling and administrative
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$6
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Fixed costs:
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Fixed manufacturing overhead
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$150,500
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Fixed selling and administrative
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$72,000
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The company produces the same number of units every month, although the sales in units vary from month to month. The company's variable costs per unit and total fixed costs have been constant from month to month.
Required:
Prepare an income statement for the month using the contribution format and the variable costing method.
Prepare an income statement for the month using the absorption costing method.
Ans:
a. Variable costing income statement
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Sales
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$630,000
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Less variable expenses:
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Variable cost of goods sold:
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Beginning inventory
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$ 24,900
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Add variable manufacturing costs
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356,900
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Goods available for sale
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381,800
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Less ending inventory
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8,300
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Variable cost of goods sold
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373,500
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Variable selling and administrative
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27,000
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400,500
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Contribution margin
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229,500
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Less fixed expenses:
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Fixed manufacturing overhead
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150,500
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Fixed selling and administrative
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72,000
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222,500
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Net operating income
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$ 7,000
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b. Absorption costing income statement
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Sales
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$630,000
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Cost of goods sold:
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Beginning inventory
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$ 35,400
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Add cost of goods manufactured
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507,400
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Goods available for sale
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542,800
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Less ending inventory
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11,800
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531,000
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Gross margin
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99,000
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Selling and administrative expenses expenses:
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Variable selling and administrative
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27,000
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Fixed selling and administrative
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72,000
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99,000
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Net operating income
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$ 0
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LO: 2 Level: Hard
156. Oates Company, which has only one product, has provided the following data concerning its most recent month of operations:
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Selling price
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$120
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Units in beginning inventory
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0
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Units produced
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7,600
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Units sold
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7,400
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Units in ending inventory
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200
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Variable costs per unit:
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Direct materials
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$15
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Direct labor
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$48
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Variable manufacturing overhead
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$7
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Variable selling and administrative
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$10
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Fixed costs:
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Fixed manufacturing overhead
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$228,000
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Fixed selling and administrative
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$66,600
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Required:
Prepare an income statement for the month using the contribution format and the variable costing method.
Prepare an income statement for the month using the absorption costing method.
Ans:
a. Variable costing income statement
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Sales
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$888,000
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Less variable expenses:
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Variable cost of goods sold:
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Beginning inventory
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$ 0
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Add variable manufacturing costs
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532,000
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Goods available for sale
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532,000
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Less ending inventory
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14,000
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Variable cost of goods sold
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518,000
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Variable selling and administrative
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74,000
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592,000
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Contribution margin
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296,000
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Less fixed expenses:
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Fixed manufacturing overhead
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228,000
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Fixed selling and administrative
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66,600
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294,600
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Net operating income
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$ 1,400
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b. Absorption costing income statement
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Sales
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$888,000
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Cost of goods sold:
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Beginning inventory
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$ 0
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Add cost of goods manufactured
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760,000
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Goods available for sale
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760,000
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Less ending inventory
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20,000
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740,000
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Gross margin
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148,000
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Selling and administrative expenses expenses:
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Variable selling and administrative
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74,000
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Fixed selling and administrative
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66,600
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140,600
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Net operating income
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$ 7,400
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LO: 2
157. Succulent Juice Company manufactures and sells premium tomato juice by the gallon. Succulent just finished its first year of operations. The following data relates to this first year:
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Number of gallons produced
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75,000
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Number of gallons sold
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70,000
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Sales price
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$3.00 per gallon
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Unit product cost under variable costing
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$1.45 per gallon
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Total contribution margin
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$84,000
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Total fixed manufacturing overhead cost
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$63,000
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Total fixed selling and administrative expense
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$10,500
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Required:
Using the absorption costing method, prepare Succulent Juice Company's income statement for the year.
Ans:
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Sales (70,000 × $3.00)
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$210,000
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Cost of goods sold:
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Beginning inventory
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$ 0
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Add cost of goods manufactured (75,000 × $2.29*)
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171,750
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Goods available for sale
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171,750
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Less ending inventory (5,000 × $2.29)
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11,450
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160,300
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Gross margin
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49,700
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Selling and administrative expenses**
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35,000
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Net operating income
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$ 14,700
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* $1.45 + ($63,000/75,000)
** Total variable cost = $210,000 - $84,000 = $126,000;
Variable selling and administrative = $126,000 - ($1.45 × 70,000) = $24,500
Total selling and administrative = $24,500 + $10,500
LO: 2 Level: Hard
158. Worrel Corporation manufactures a variety of products. The following data pertain to the company's operations over the last two years:
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Variable costing net operating income, last year
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$71,000
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Variable costing net operating income, this year
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$92,000
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Fixed manufacturing overhead costs deferred in inventory under absorption costing, last year
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$2,000
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Fixed manufacturing overhead costs released from inventory under absorption costing, this year
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$11,000
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Required:
Determine the absorption costing net operating income last year. Show your work!
Determine the absorption costing net operating income this year. Show your work!
Ans:
a. and b.
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Last Year
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This Year
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Variable costing net operating income
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$71,000
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$92,000
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Add fixed manufacturing overhead costs deferred in inventory under absorption costing
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2,000
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0
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Deduct fixed manufacturing overhead costs released from inventory under absorption costing
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0
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(11,000)
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Absorption costing net operating income
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$73,000
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$81,000
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159. Corbett Corporation manufactures a variety of products. Last year, variable costing net operating income was $72,000. The fixed manufacturing overhead costs deferred in inventory under absorption costing amounted to $29,000.
Required:
Determine the absorption costing net operating income last year. Show your work!
Ans:
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Variable costing net operating income
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$72,000
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Add fixed manufacturing overhead costs deferred in inventory under absorption costing
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29,000
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Deduct fixed manufacturing overhead costs released from inventory under absorption costing
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0
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Absorption costing net operating income
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$101,000
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160. Last year, Rasband Corporation's variable costing net operating income was $57,000. The fixed manufacturing overhead costs deferred in inventory under absorption costing amounted to $30,000.
Required:
Determine the absorption costing net operating income last year. Show your work!
Ans:
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Variable costing net operating income
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$57,000
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Add fixed manufacturing overhead costs deferred in inventory under absorption costing
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30,000
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Deduct fixed manufacturing overhead costs released from inventory under absorption costing
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0
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Absorption costing net operating income
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$87,000
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161. Phinisee Corporation manufactures a variety of products. The following data pertain to the company's operations over the last two years:
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Variable costing net operating income, last year
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$82,700
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Variable costing net operating income, this year
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$87,800
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Increase in ending inventory, last year
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900
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Decrease in ending inventory, this year
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3,100
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Fixed manufacturing overhead cost per unit
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$2
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Required:
Determine the absorption costing net operating income for last year. Show your work!
Determine the absorption costing net operating income for this year. Show your work!
Ans:
a. and b.
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Last Year
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This Year
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Change in units in ending inventory
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$900
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($3,100)
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Fixed manufacturing overhead cost per unit
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$2
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$2
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Change in fixed manufacturing overhead in ending inventory
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$1,800
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($6,200)
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Variable costing net operating income
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$82,700
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$87,800
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Add fixed manufacturing overhead costs deferred in inventory under absorption costing
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1,800
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0
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Deduct fixed manufacturing overhead costs released from inventory under absorption costing
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0
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(6,200)
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Absorption costing net operating income
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$84,500
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$81,600
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162. Last year, Denogean Corporation's variable costing net operating income was $64,200 and ending inventory increased by 1,900 units. Fixed manufacturing overhead cost per unit was $4.
Required:
Determine the absorption costing net operating income for last year. Show your work!
Ans:
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Change in units in ending inventory
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$1,900
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Fixed manufacturing overhead cost per unit
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$4
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Change in fixed manufacturing overhead in ending inventory
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$7,600
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Variable costing net operating income
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$64,200
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Add fixed manufacturing overhead costs deferred in inventory under absorption costing
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7,600
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Deduct fixed manufacturing overhead costs released from inventory under absorption costing
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0
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Absorption costing net operating income
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$71,800
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