Learning Materials
Features
Discover
Chapter 21: Q-21-16 (page 1167)
How can variable costing be used in service companies?
Answer
Variable costing can be used for profitability analysis and contribution margin analysis.
Over 30 million students worldwide already upgrade their learning with 91影视!
All the tools & learning materials you need for study success - in one app.
Get started for free
Question: The Hurley Hat Company manufactures baseball hats. Hurley鈥檚 primary customers are sporting goods stores that supply uniforms to youth baseball teams. Following is Hurley鈥檚 income statement for 2018:
In 2018, Hurley produced and sold 200,000 baseball hats. Of the Cost of Goods Sold, \(150,000 is fixed; 80% of the Selling and Administrative Expenses are fixed. There were no beginning inventories on January 1, 2018. The company is considering two options to increase sales.
Option 1: The company is operating at 100,000 hats below full production capacity and is considering increasing advertising to increase sales to the production capacity level in 2019. The marketing director predicts that an additional \)100,000 expenditure for advertising would increase sales to 300,000 hats per year.
Option 2: The sales manager has been negotiating with buyers for several national sporting goods retailers and recommends the company expand production capacity to 400,000 hats in order to secure long-term contracts beginning in 2019. The expansion is expected to increase fixed manufacturing costs by \(200,000 per year. Additionally, the retailers are requesting a higher-quality hat, and the changes to the hat materials and manufacturing process would increase variable manufacturing costs by \)1 per hat for the additional 200,000 hats. (The original 200,000 hats manufactured and sold would not be affected by this change.)
Requirements
1. Use the data from the 2018 income statement to prepare an income statement using variable costing. Assume no beginning or ending inventories. Calculate the contribution margin ratio. Round to two decimal places.
2. Prepare an absorption costing income statement assuming the company pursues Option 1 and increases advertising and production and sales increase to 300,000 hats.
3. Refer to the original data. Prepare an absorption costing income statement assuming the company pursues Option 2 and increases capacity and sales and production increases to 400,000 total hats.
4. Which option should the company pursue? Explain your reasoning.
Pierce Company had the following costs:
Units produced
500 units Manufacturing costs:
Direct materials
$ 25 per unit Direct labor
45 per unit Variable manufacturing overhead
15 per unit Fixed manufacturing overhead
5,000 per year Selling and administrative costs:
Variable selling and administrative costs
30 per unit Fixed selling and administrative costs
3,200 per year
Calculate the unit product cost using absorption costing and variable costing
Analyzing profitabilityFather Furniture Company manufactures and sells oak tables and chairs. Price and cost data for the furniture follow:
Tables Chairs Sales Price \( 800 \) 70 Variable manufacturing costs 60025Sales commission (10%) 807Relative Furniture has three sales representatives: Adam, Ben, and Caleb. Adam sold 100 tables with 6 chairs each. Ben sold 110 tables with 4 chairs each. Caleb sold 80 tables with 8 chairs each.
Requirements
1. Calculate the total contribution margin and the contribution margin ratio for each sales representative (round to two decimal places).
2. Which sales representative has the highest contribution margin ratio? Explain why.
Computing unit product cost, variable costing Calculate the unit product cost using variable costing. Round your answer to the nearest cent.
Use the following information for Short Exercises S21-2 and S21-3.
Martin Company had the following costs:
Units produced 320 units Direct materials $ 71 per unit Direct labor 40 per unit Variable manufacturing overhead 13 per unit Fixed manufacturing overhead 7,360 per year Variable selling and administrative costs 22 per unit Fixed selling and administrative costs 1,920 per year
When units produced are less than units sold, how does operating income differ between variable costing and absorption costing? Why
What do you think about this solution?
We value your feedback to improve our textbook solutions.
Explanations 
Textbooks 
Flashcards 
91影视 AI 
Notes 
Study Plans 
Study Sets 
Find a degree 
Magazine