A manufacturer reports direct materials of $5 per unit, direct labor of $2 per unit, and variable overhead of $3 per unit. Fixed overhea is $200,000 per year, and the company estimates sales of 20,000 units at a sales price of $22 per unit for the year. The company has no beginning finished goods inventory. 1. If the company uses absorption costing, compute gross profit assuming (a) 20,000 units are produced and 20,000 units are sold an (b) 25,000 units are produced and 20,000 units are sold. 2. If the company uses variable costing, how much would contribution margin differ if the company produced 25,000 units instead of producing 20,000? Assume the company sells 20,000 units. Hint: Calculations are not required.

A manufacturer reports direct materials of $5 per unit, direct labor of $2 per unit, and variable overhead of $3 per unit. Fixed overhea is $200,000 per year, and the company estimates sales of 20,000 units at a sales price of $22 per unit for the year. The company has no beginning finished goods inventory. 1. If the company uses absorption costing, compute gross profit assuming (a) 20,000 units are produced and 20,000 units are sold an (b) 25,000 units are produced and 20,000 units are sold. 2. If the company uses variable costing, how much would contribution margin differ if the company produced 25,000 units instead of producing 20,000? Assume the company sells 20,000 units. Hint: Calculations are not required.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

What would NUBD Corp. have reported as its income before income taxes if it had used variable costing?
At the end of the accounting period Tubman, Inc. reports operating income of $50,000, a contribution margin of $15, and a fixed overhead rate of $6 per unit. Under variable costing, if this company produces 100 more units of inventory, then operating income: a. will increase by $1,500 b. will decrease by $1,500 c. will increase by $900 d. will decrease by $900 e. will increase by $600 f. will decrease by $600 g. will not be affected h. Cannot be determined
The Southern Corporation manufactures a single product and has the following cost structure: Variable costs per unit: Production $ 33 Selling and administrative $ 16 Fixed costs per year: Production $ 130,830 Selling and administrative $ 107,280 Last year, 6,230 units were produced and 6,030 units were sold. There was no beginning inventory. The carrying value on the balance sheet of the ending inventory of finished goods under variable costing would be:
A company's operating income was $75,000 using variable costing for a given period. Beginning and ending inventories for that period were 46,000 units and 51,000 units, respectively. Ignoring income taxes, if the fixed factory overhead application rate was $8.10 per unit, what would operating income have been using full costing? Multiple Choice $32,250. $115,500. Cannot be determined from the information given. $150,000. $102,000.
Rey Company’s single product sells at a price of $218 per unit. Data for its single product for its first year of operations follow. Direct materials $ 22 per unit Direct labor $ 30 per unit Overhead costs Variable overhead $ 8 per unit Fixed overhead per year $ 220,000 per year Selling and administrative expenses Variable $ 20 per unit Fixed $ 204,000 per year Units produced and sold 22,000 units 1. Prepare an income statement for the year using absorption costing2. Prepare an income statement for the year using variable costing.
A company has a net income of $918,000 based on variable costing method. Beginning and ending inventories were 56,800 units and 55,600 units. Assume the fixed overhead per unit was $2.15 for both the beginning and ending inventory. What will be the net income under absorption costing?
lagan, Inc. has collected the following data. (There are no beginning inventories.) Units produced Sales price 700 units $120 per unit Direct materials $50 per unit Direct labor Fixed manufacturing overhead $12 per unit Variable manufacturing overhead $9 per unit $17,500 per year Variable selling and administrative costs $4 per unit $18,000 per year Fixed selling and administrative costs What is the ending balance in Finished Goods Inventory using variable costing if 400 units are sold? OA. $21,300 OB. $15,000 C. $18,600 D. $6,300
Assume the following information for a company that produced 10,000 units and sold 9,000 units during its first year of operations: Selling price Direct materials Direct labor Variable manufacturing overhead Sales commission Fixed manufacturing overhead Per Unit $ 200 $ 72 $ 50 $ 10 $8 Multiple Choice $ 287,000 Which of the following choices explains the relationship between the absorption costing net operating income and the variable costing net operating income? The absorption costing net operating income will be lower than the variable costing net operating income by $28,700. The absorption costing net operating income will be lower than the variable costing net operating income by $100,700. Per Year The absorption costing net operating income will be higher than the variable costing net operating income by $28,700.
In the last reporting period, Harold's Hat Company recorded 100,000 units sold for the first time in the history of the company. The price per unit was $89.99 and variable costs per unit was $36.39. Compute the fixed costs if the operating income is $4,020,000. Do not use units in your final answer (i.e. $ or commas). Answer:
The Southern Corporation manufactures a single product and has the following cost structure: Variable costs per unit: Production Selling and administrative $ $ 35 14 Fixed costs per year: Production $216,300 $190,340 Selling and administrative Last year, 7,210 units were produced and 7,110 units were sold. There was no beginning inventory. The carrying value on the balance sheet of the ending inventory of finished goods under variable costing would be:
Variable and Absorption CostingChandler Company sells its product for $108 per unit. Variable manufacturing costs per unit are $49, and fixed manufacturing costs at the normal operating level of 12,000 units are $240,000. Variable selling expenses are $17 per unit sold. Fixed administrative expenses total $104,000. Chandler had no beginning inventory for the year. During the year, the company produced 12,000 units and sold 9,000. Would net income for Chandler Company be higher if calculated using variable costing or using absorption costing?Calculate reported income using each method.Do not use negative signs with any answers.
Cool Sky reports the following for its first year of operations. The company produced 44,000 units and sold 36,000 units at a price of $140 per unit. Direct materials Direct labor Variable overhead Fixed overhead Variable selling and administrative expenses Fixed selling and administrative expenses 2b. Assume the company uses variable costing. Prepare its income statement for the year under variable costing. Income Statement (Variable Costing) Sales Less: Variable expenses Variable cost of goods sold Variable selling and administrative expenses Contribution margin Less: Fixed expenses Fixed selling and administrative expenses Income $ 3,240,000 396,000 105,000 5,040,000 3,636,000 1,404,000 $ 60 per unit $ 22 per unit $ 8 per unit $ 528,000 per year $ 11 per unit $ 105,000 per year 105,000