Brindle Arts uses Variable Costing for internal purposes, but uses Absorption Costing for their financial reports. The following information is for Quarter 4, 2021 and Quarter 1, 2022. Calculate unit product costs for Quarters 4 and 1 for Variable and Absorption Costing. Prepare an income statement for each method, then show why there is a difference between the two. Selling price per unit $ 150 Quarter 4 Quarter 1 Variable costs per unit Units in beginning inventory - 1,750 Direct materials $ 45.00 Production (in units) 15,000 10,750 Direct labor $ 20.00 Sales (in units) 13,250 12,500 Variable overhead $ 15.00 Ending inventory 1,750 - Variable S&A $ 10.00 Fixed Costs in total per quarter Fixed manufacturing overhead $325,000 $ 25 Fixed selling & administrative $175,000 Show the difference between variable costing NOI and absorption costing NOI. Variable Costing Compute the unit product costs for Quarters 4 and 1 Quarter 4 Quarter 1 Units in beginning inventory Quarter 4 Quarter 1 + units produced Variable unit product cost - units sold = units in ending inventory Prepare an income statement for Quarters 4 and 1 FOH costs in ending inventory Quarter 4 Quarter 1 - FOH in beg. inv. Sales = FOH deferred in inventory Variable expenses: or released from inventory Variable CoGS Variable S&A Variable NOI Total variable expenses Add/less: FOH deferred/released in inventory Contribution Margin Fixed expenses: Absorption costing NOI Fixed MOH Fixed S&A Total fixed expenses Net Operating Income Absorption Costing Compute the unit product costs for Quarters 4 and 1 Quarter 4 Quarter 1 Absorption unit product cost Prepare an income statement for Quarters 4 and 1 Quarter 4 Quarter 1 Sales CoGS Gross Margin S&A Expenses Net Operating Income
Brindle Arts uses Variable Costing for internal purposes, but uses Absorption Costing for their financial reports. The following information is for Quarter 4, 2021 and Quarter 1, 2022. Calculate unit product costs for Quarters 4 and 1 for Variable and Absorption Costing. Prepare an income statement for each method, then show why there is a difference between the two. Selling price per unit $ 150 Quarter 4 Quarter 1 Variable costs per unit Units in beginning inventory - 1,750 Direct materials $ 45.00 Production (in units) 15,000 10,750 Direct labor $ 20.00 Sales (in units) 13,250 12,500 Variable overhead $ 15.00 Ending inventory 1,750 - Variable S&A $ 10.00 Fixed Costs in total per quarter Fixed manufacturing overhead $325,000 $ 25 Fixed selling & administrative $175,000 Show the difference between variable costing NOI and absorption costing NOI. Variable Costing Compute the unit product costs for Quarters 4 and 1 Quarter 4 Quarter 1 Units in beginning inventory Quarter 4 Quarter 1 + units produced Variable unit product cost - units sold = units in ending inventory Prepare an income statement for Quarters 4 and 1 FOH costs in ending inventory Quarter 4 Quarter 1 - FOH in beg. inv. Sales = FOH deferred in inventory Variable expenses: or released from inventory Variable CoGS Variable S&A Variable NOI Total variable expenses Add/less: FOH deferred/released in inventory Contribution Margin Fixed expenses: Absorption costing NOI Fixed MOH Fixed S&A Total fixed expenses Net Operating Income Absorption Costing Compute the unit product costs for Quarters 4 and 1 Quarter 4 Quarter 1 Absorption unit product cost Prepare an income statement for Quarters 4 and 1 Quarter 4 Quarter 1 Sales CoGS Gross Margin S&A Expenses Net Operating Income
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Brindle Arts uses Variable Costing for internal purposes, but uses Absorption Costing for their financial reports. The following information is for Quarter 4, 2021 and Quarter 1, 2022. | ||||||
Calculate unit product costs for Quarters 4 and 1 for Variable and Absorption Costing. Prepare an income statement for each method, then show why there is a difference between the two. |
||||||
Selling price per unit | $ 150 | |||||
Quarter 4 | Quarter 1 | Variable costs per unit | ||||
Units in beginning inventory | - | 1,750 | Direct materials | $ 45.00 | ||
Production (in units) | 15,000 | 10,750 | Direct labor | $ 20.00 | ||
Sales (in units) | 13,250 | 12,500 | Variable |
$ 15.00 | ||
Ending inventory | 1,750 | - | Variable S&A | $ 10.00 | ||
Fixed Costs in total per quarter | ||||||
Fixed manufacturing overhead | $325,000 | $ 25 | ||||
Fixed selling & administrative | $175,000 | |||||
Show the difference between variable costing NOI and absorption costing NOI. | ||||||
Variable Costing | ||||||
Compute the unit product costs for Quarters 4 and 1 | Quarter 4 | Quarter 1 | ||||
Units in beginning inventory | ||||||
Quarter 4 | Quarter 1 | + units produced | ||||
Variable unit product cost | - units sold | |||||
= units in ending inventory | ||||||
Prepare an income statement for Quarters 4 and 1 | ||||||
FOH costs in ending inventory | ||||||
Quarter 4 | Quarter 1 | - FOH in beg. inv. | ||||
Sales | = FOH deferred in inventory | |||||
Variable expenses: | or released from inventory | |||||
Variable CoGS | ||||||
Variable S&A | Variable NOI | |||||
Total variable expenses | Add/less: FOH deferred/released in inventory | |||||
Contribution Margin | ||||||
Fixed expenses: | Absorption costing NOI | |||||
Fixed MOH | ||||||
Fixed S&A | ||||||
Total fixed expenses | ||||||
Net Operating Income | ||||||
Absorption Costing | ||||||
Compute the unit product costs for Quarters 4 and 1 | ||||||
Quarter 4 | Quarter 1 | |||||
Absorption unit product cost | ||||||
Prepare an income statement for Quarters 4 and 1 | ||||||
Quarter 4 | Quarter 1 | |||||
Sales | ||||||
CoGS | ||||||
Gross Margin | ||||||
S&A Expenses | ||||||
Net Operating Income |
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