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Chapter 21: Q21-19E (page 1171)

Question: Preparing variable costing income statements, production less than sales

Refer to your answers to Exercise E21-16. In May 2018, ReVitalAde produced 22,000 cases of powdered drink mix and sold 23,000 cases, of which 1,000 were produced in April. 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 and $9,000 selling and administrative).

Requirements

  1. Prepare the May income statement using variable costing.
  2. Determine the balance in the Finished Goods Inventory as of May 31.

Short Answer

Expert verified

Answer

  1. Operating income is $291,000
  2. Finished goods inventory as of May 31 is 0.

Step by step solution

01

Income statement using variable costing

Particulars

Amount

Net sales revenue ($29x23,000)

$667,000

Less: Variable costs ($12x23,000)

$276,000

Contribution margin

$391,000

Less: Fixed costs

Fixed costs of goods sold

$91,000

Fixed selling and administrative cost

$9,000

Operating Income

$291,000

02

Balance of finished goods inventory as of May 31.

Ending balance in Finished Goods Inventory = Beginning balance + Units Produced 鈭� Units sold

= 1,000 units + 22,000 units - 23,000 units

= 0 units

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Most popular questions from this chapter

In the long run, all costs are controllable. Is this statement true? Why or why not?

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 profitability

Camden Company has divided its business into segments based on sales territories: East Coast, Midland, and West Coast. Following are financial data for 2018:

East Coast

Midland

West Coast

Units sold

71

69

53

Sales price per unit

\(10,300

\)13,600

\(12,000

Variable cost per unit

6,283

7,072

7,080

Prepare an income statement for Camden Company for 2018 using the contribution margin format assuming total fixed costs for the company were \)435,000. Include columns for each business segment and a column for the total company.

Using variable costing, service company Refer to Exercise E21-25. The commercial business segment provided services to 200 customers. The residential business segment provided services to 400 customers. Determine the average amount Sherman Company charged each type of customer for services, the average variable cost per customer, and the average contribution margin per customer, rounded to two decimal places. What caused the difference in contribution margin in the two segments?

Using variable costing, service company

Professional Pool Cleaning Service provides pool cleaning services to residential customers. The company has three employees, each assigned to specific customers. The company considers each employee鈥檚 territory as a business segment. The company incurs variable costs that include the employees鈥� wages, pool chemicals, and gas for the service vans. Fixed costs include depreciation on the service vans. Following is the income statement for the month of July:

Requirements

  1. Calculate the contribution margin ratio for each business segment.
  2. The business segments had the following numbers of customers: Birman, 60; Meech, 70; and Frond, 40. Compute the service revenue per customer, variable cost per customer, and contribution margin per customer for each business segment.
  3. Which business segment was most profitable? List some possible reasons why this segment was most profitable. How might the various reasons affect the company in the long term?
See all solutions

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