Sales (@ $25 per unit). $1,000,000 $1,250,000 Cost of goods sold (@ $18 per unit). 720,000 900,000 Gross margin .. 280,000 350,000 Selling and administrative expenses". 210,000 230,000 Net operating income .. $ 70,000 $ 120,000 *S2 per unit variable; $130,000 fixed each year. page 294 The company's $18 unit product cost is computed as follows: Direct materials. Direct labor. $ 4 Variable manufacturing overhead . 1 Fixed manufacturing overhead ($270,000 - 45,000 units). 6. Absorption costing unit product cost.. $18 Forty percent of fixed manufacturing overhead consists of wages and salaries; the remainder consists of depreciation charges on production equipment and buildings. Production and cost data for the first two years of operations are: Year 1 Year 2 Units produced. 45,000 45,000 Units sold.. 40,000 50,000 Required: 1. Using variable costing, what is the unit product cost for both years? 2. What is the variable costing net operating income in Year 1 and in Year 2? 3. Reconcile the absorption costing and the variable costing net operating income figures for each year. 9:23 PM a (? A ((pツ 10/15/2020

Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter6: Cost-volume-profit Analysis
Section: Chapter Questions
Problem 17E
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2. What is the variable costing net operating income in Year 1 and in Year 2?

### Educational Content: Variable Costing and Segment Reporting

**Sales Analysis**

- **Year 1**:
  - Sales (@ $25 per unit): $1,000,000
  - Cost of goods sold (@ $18 per unit): $720,000
  - Gross margin: $280,000
  - Selling and administrative expenses*: $210,000
  - Net operating income: $70,000

- **Year 2**:
  - Sales (@ $25 per unit): $1,250,000
  - Cost of goods sold (@ $18 per unit): $900,000
  - Gross margin: $350,000
  - Selling and administrative expenses*: $230,000
  - Net operating income: $120,000

*Selling and administrative expenses include $2 per unit variable and $130,000 fixed each year.

---

**Product Cost Computation**

The company computes its $18 unit product cost as follows:

- Direct materials: $4
- Direct labor: $7
- Variable manufacturing overhead: $1
- Fixed manufacturing overhead ($270,000 ÷ 45,000 units): $6

**Total Absorption Costing Unit Product Cost: $18**

---

**Fixed Manufacturing Overhead Details**

- 40% consists of wages and salaries.
- The remainder consists of depreciation charges on production equipment and buildings.

---

**Production and Cost Data for First Two Years**

- **Units Produced**:
  - Year 1: 45,000 units
  - Year 2: 45,000 units

- **Units Sold**:
  - Year 1: 40,000 units
  - Year 2: 50,000 units

---

**Required Tasks**

1. Determine the unit product cost for both years using variable costing.
2. Calculate the variable costing net operating income for Year 1 and Year 2.
3. Reconcile the absorption costing and variable costing net operating income figures for each year.
Transcribed Image Text:### Educational Content: Variable Costing and Segment Reporting **Sales Analysis** - **Year 1**: - Sales (@ $25 per unit): $1,000,000 - Cost of goods sold (@ $18 per unit): $720,000 - Gross margin: $280,000 - Selling and administrative expenses*: $210,000 - Net operating income: $70,000 - **Year 2**: - Sales (@ $25 per unit): $1,250,000 - Cost of goods sold (@ $18 per unit): $900,000 - Gross margin: $350,000 - Selling and administrative expenses*: $230,000 - Net operating income: $120,000 *Selling and administrative expenses include $2 per unit variable and $130,000 fixed each year. --- **Product Cost Computation** The company computes its $18 unit product cost as follows: - Direct materials: $4 - Direct labor: $7 - Variable manufacturing overhead: $1 - Fixed manufacturing overhead ($270,000 ÷ 45,000 units): $6 **Total Absorption Costing Unit Product Cost: $18** --- **Fixed Manufacturing Overhead Details** - 40% consists of wages and salaries. - The remainder consists of depreciation charges on production equipment and buildings. --- **Production and Cost Data for First Two Years** - **Units Produced**: - Year 1: 45,000 units - Year 2: 45,000 units - **Units Sold**: - Year 1: 40,000 units - Year 2: 50,000 units --- **Required Tasks** 1. Determine the unit product cost for both years using variable costing. 2. Calculate the variable costing net operating income for Year 1 and Year 2. 3. Reconcile the absorption costing and variable costing net operating income figures for each year.
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