4. Under 100% sales assumption using absorption costing, the ending inventory balance is5. Under 75% sale assumption, using absorption costing, the ending inventory balance is?6. Under 75% sale assumption, using variable costing, the ending inventory balance is? XYZ Company anticipates the following costs during the first year ofoperations. The company is attempting to project profitability if 100% ofproduction is sold, and if 75% of production is sold. Use the pick listsassociated with the boxed areas to select amounts for each cost category in theabsorption and variable costing income statements that follow. Correctselections will turn the boxed areas green. Afterwards, answer the questions atthe bottom of the spreadsheet.Direct materialsDirect laborVariable manufacturing overheadFixed manufacturing overheadVariable selling, general, and administrativeFixed selling, general, and administrativeSalesAbsorption v. variable costing.xlsxAssumption >>>>Less: SG&ALess: Cost of goods soldGross profitIncomeXYZ CompanyABSORPTON COSTING INCOME STATEMENTFor the Year Ending December 31, 20XX75% SoldSalesAssumption >>>>Less: Variable product costVariable manufacturing marginIncomeLess: Variable SG&AContribution marginLess: Fixed expenses450,000XYZ CompanyVARIABLE COSTING INCOME STATEMENTFor the Year Ending December 31, 20XX95,00092,50075% Sold450,000187,500262,500262,500350,000187,500 250,00045,000150,000150,00067,50075,00025,000How much is ending inventory if 75% of the production is sold, and:XYZ uses absorption costing? >>>>XYZ uses variable costing? >>>>100,00010% of sales50,000100% Sold600,000110,000140,000100% SoldHONDA60,000217,500 290,000600,000250,000350,000150,000140,000Notice that income is the same under absorption and variable costing if all production is sold. This isnot true when only 75% of production is sold because all of the manufacturing overhead is chargedagainst income under variable costing, but not absorption costing.87,50062,500Notice that the $25,000 difference between ending inventory amounts ($87,500 and $62,500) is equalto the difference in income ($92,500 v. $67,500). This occurs because $25,000 of fixedmanufacturing overhead is assigned to inventory under absorption costing but charged against incomeunder variable costing.

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The inventory can be valued using various assumptions as variable costing and absorption costing.…

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Under 100% sales assumption using absorption costing, the ending inventory balance is 5. Under 75% sale assumption, using absorption costing, the ending inventory balance is? 6. Under 75% sale assumption, using variable costing, the ending inventory balance is?

Under 100% sales assumption using absorption costing, the ending inventory balance is 5. Under 75% sale assumption, using absorption costing, the ending inventory balance is? 6. Under 75% sale assumption, using variable costing, the ending inventory balance is?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Inventory Valuation

Before discussing the topic inventory valuation let’s discuss the meaning of inventory. In accounting, inventory is also known as stock. Inventory means all the finished goods, materials, merchandise that a business holds for the purpose of selling it in the market with the motive of earning profit.

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Question

4. Under 100% sales assumption using absorption costing, the ending inventory balance is

5. Under 75% sale assumption, using absorption costing, the ending inventory balance is?

6. Under 75% sale assumption, using variable costing, the ending inventory balance is?

XYZ Company anticipates the following costs during the first year of
operations. The company is attempting to project profitability if 100% of
production is sold, and if 75% of production is sold. Use the pick lists
associated with the boxed areas to select amounts for each cost category in the
absorption and variable costing income statements that follow. Correct
selections will turn the boxed areas green. Afterwards, answer the questions at
the bottom of the spreadsheet.
Direct materials
Direct labor
Variable manufacturing overhead
Fixed manufacturing overhead
Variable selling, general, and administrative
Fixed selling, general, and administrative
Sales
Absorption v. variable costing.xlsx
Assumption >>>>
Less: SG&A
Less: Cost of goods sold
Gross profit
Income
XYZ Company
ABSORPTON COSTING INCOME STATEMENT
For the Year Ending December 31, 20XX
75% Sold
Sales
Assumption >>>>
Less: Variable product cost
Variable manufacturing margin
Income
Less: Variable SG&A
Contribution margin
Less: Fixed expenses
450,000
XYZ Company
VARIABLE COSTING INCOME STATEMENT
For the Year Ending December 31, 20XX
95,000
92,500
75% Sold
450,000
187,500
262,500
262,500
350,000
187,500 250,000
45,000
150,000
150,000
67,500
75,000
25,000
How much is ending inventory if 75% of the production is sold, and:
XYZ uses absorption costing? >>>>
XYZ uses variable costing? >>>>
100,000
10% of sales
50,000
100% Sold
600,000
110,000
140,000
100% Sold
HONDA
60,000
217,500 290,000
600,000
250,000
350,000
150,000
140,000
Notice that income is the same under absorption and variable costing if all production is sold. This is
not true when only 75% of production is sold because all of the manufacturing overhead is charged
against income under variable costing, but not absorption costing.
87,500
62,500
Notice that the $25,000 difference between ending inventory amounts ($87,500 and $62,500) is equal
to the difference in income ($92,500 v. $67,500). This occurs because $25,000 of fixed
manufacturing overhead is assigned to inventory under absorption costing but charged against income
under variable costing.

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