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Chapter 21: Q16E (page 1171)

Question: Preparing variable costing income statements, production exceeds sales

ReVitalAde produced 13,000 cases of powdered drink mix and sold 12,000 cases in April 2018. The sales price was \(29, variable costs were \)12 per case (\(9 manufacturing and \)3 selling and administrative), and total fixed costs were \(100,000 (\)91,000 manufacturing overhead and $9,000 selling and administrative). The company had no beginning Finished Goods Inventory.

Requirements:

  1. Prepare the April income statement using variable costing.
  2. Determine the product cost per unit and the total cost of the 1,000 cases in Finished Goods Inventory as of April 30.

Short Answer

Expert verified

Answer

  1. Operating income is $104,000
  2. Total unit product cost is $9 and finished goods inventory is $9,000.

Step by step solution

01

Income statement using variable costing

Particulars

Amount

Net sales revenue ($29x12,000)

$348,000

Less: Variable costs ($12x12,000)

$144,000

Contribution margin

$204,000

Less: Fixed costs

Fixed costs of goods sold

$91,000

Fixed selling and administrative cost

$9,000

Operating Income

$104,000

02

Calculation of product cost per unit and total cost of 1,000 cases in finished goods inventory as of April 30.

Particulars

Amount

Variable manufacturing cost

$9

Total unit product cost

$9

Finished goods inventory, ending balance ($9x1,000)

$9,000

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Most popular questions from this chapter

Question: Preparing variable and absorption costing income statements

Game Store manufactures video games that it sells for \(38 each. The company uses a fixed manufacturing overhead allocation rate of \)3 per game. Assume all costs and production levels are exactly as planned. The following data are from Game Store鈥檚 first two months in business during 2018:

October November

Sales 1,500 units 2,900 units

Production 2,800 units 2,800 units

Variable manufacturing cost per game \( 16 \) 16

Sales commission cost per game 8 8

Total fixed manufacturing overhead 8,400 8,400

Total fixed selling and administrative costs 8,000 8,000 Requirements

1. Compute the product cost per game produced under absorption costing and under variable costing.

2. Prepare monthly income statements for October and November, including columns for each month and a total column, using these costing methods:

a. absorption costing.

b. variable costing.

3. Is operating income higher under absorption costing or variable costing in October? In November? Explain the pattern of differences in operating income based on absorption costing versus variable costing.

4. Determine the balance in Finished Goods Inventory on October 31 and November 30 under absorption costing and variable costing. Compare the differences in inventory balances and the differences in operating income. Explain the differences in inventory balances based on absorption costing versus variable costing.

Classifying costs Classify each cost by placing an X in the appropriate columns. The first cost is completed as an example.

Absorption Costing Variable Costing Product Cost Period Cost Product Cost Period cost

  1. Direct materials
  2. Direct labor
  3. Variable manufacturing overhead
  4. Fixed manufacturing overhead
  5. Variable selling and administrative costs
  6. Fixed selling and administrative cost

Explain why the fixed manufacturing overhead cost per unit changes when there is a change in the number of units produced.

Analyzing profitability

Relative Furniture Company manufactures and sells oak tables and chairs. Price and cost data for the furniture follow:

Tables Chairs

Sales Price \( 1,400 \) 50

Variable manufacturing costs 1,148 21

Sales commission (8%) 112 4

Relative Furniture has three sales representatives: Abe, Brett, and Corrin. Abe sold 50 tables with 4 chairs each. Brett sold 110 tables with 6 chairs each. Corrin sold 90 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.

Question: Computing variable costing operating income Refer to the information for Concord, Inc.

Requirements:

  1. Using variable costing, calculate the unit product cost.
  2. Prepare an income statement using the contribution margin format.

Use the following information for Exercises E21-14 and E21-15.

Concord, Inc. has collected the following data for November (there are no beginning inventories):

Units produced and sold 500 units Sales price $ 450 per unit Direct materials 64 per unit Direct labor 68 per unit Variable manufacturing overhead 26 per unit Fixed manufacturing overhead 7,500 per month Variable selling and administrative costs 15 per unit Fixed selling and administrative costs 4,400 per month

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