Chapter 5, Problem 5.29C

1.

To determine

Introduction: Job costing is a technique of determine the cost of a manufacturing job rather than the process of the job. Manufacturing overhead is applied to product or job order is determined as predetermined overhead.

To compute: the unit product cost for the year, net operating income using absorption costing and reconciliation statement.

Answer to Problem 5.29C

Income statement is given below.

Explanation of Solution

1. Unit product cost by using variable costing for year 1, 2 and 3

Year 1:

Unit product cost by using variable costing:

Particular	Per unit cost $
Direct material	32
Direct labor	20
Variable manufacturing overhead	4
Unit product cost by using variable costing	46

Year 2:

Unit product cost by using variable costing:

Particular	Per unit cost $
Direct material	32
Direct labor	20
Variable manufacturing overhead	4
Unit product cost by using variable costing	46

Year 3:

Unit product cost by using variable costing:

Particular	Per unit cost $
Direct material	32
Direct labor	20
Variable manufacturing overhead	4
Unit product cost by using variable costing	46

2. Income statement using variable costing

Year 1:

Cost of goods sold:

  $\begin{array}{l}\mathrm{cost}ofgoodssold=unitsold\times unitproduct\cos t\\ =80,000units\times \$56\\ =\$4,480,000\end{array}$

Variable selling and administrative costs:

  $\begin{array}{l}\mathrm{var}iablesellingandad\min istrative\cos t=unitsold\times \mathrm{var}iable\cos tpereunit\\ =80,000units\times \$36\\ =\$240,000\end{array}$

Particular	Amount $	Amount $
Sales		6,000,000
Variable expense
Variable cost of goods sold	4,480,000
Variable selling and administrative costs	240,000
Total variable expense		4,470,000
Contribution margin		1,280,000
Fixed expense	660,000
Fixed manufacturing overhead	120,000
Fixed selling and administrative expense		780,000
Total fixed expense		500,000
Net operating income

Year 2:

Cost of goods sold:

  $\begin{array}{l}\mathrm{cost}ofgoodssold=unitsold\times unitproduct\cos t\\ =90,000units\times \$56\\ =\$5,040,000\end{array}$

Variable selling and administrative costs:

  $\begin{array}{l}\mathrm{var}iablesellingandad\min istrative\cos t=unitsold\times \mathrm{var}iable\cos tpereunit\\ =90,000units\times \$3\\ =\$270,000\end{array}$

Particular	Amount $	Amount $
Sales		6,750,000
Variable expense
Variable cost of goods sold	5,040,000
Variable selling and administrative costs	270,000
Total variable expense		5,310,000
Contribution margin		1,80,000
Fixed expense
Fixed manufacturing overhead	660,000
Fixed selling and administrative expense	120,000
Total fixed expense		780,000
Net operating income		660,000

Year 3:

Cost of goods sold:

  $\begin{array}{l}\mathrm{cost}ofgoodssold=unitsold\times unitproduct\cos t\\ =75,000units\times \$56\\ =\$4,200,000\end{array}$

Variable selling and administrative costs:

  $\begin{array}{l}\mathrm{var}iablesellingandad\min istrative\cos t=unitsold\times \mathrm{var}iable\cos tpereunit\\ =75,000units\times \$3\\ =\$225,000\end{array}$

Particular	Amount $	Amount $
Sales		5,625,000
Variable expense
Variable cost of goods sold	4,200,000
Variable selling and administrative costs	225,000
Total variable expense		4,425,000
Contribution margin		1,200,000
Fixed expense
Fixed manufacturing overhead	660,000
Fixed selling and administrative expense	120,000
Total fixed expense		780,000
Net operating income		420,000

2.

To determine

Introduction: Job costing is a technique of determine the cost of a manufacturing job rather than the process of the job. Manufacturing overhead is applied to product or job order is determined as predetermined overhead.

To compute: the unit product cost for the year, net operating income using absorption costing and reconciliation statement.

Answer to Problem 5.29C

Income statement is given below.

Explanation of Solution

1. The Unit product costing using LIFO method of inventory reporting for year1, 2, and 3 will be same as using FIFO method as the cost per unit of the inventory remain same for three years.
2. The assumption of inventory flow is considered as irrelevant when the product cost per unit remain stable in all the three years. Hence the income statement is also considerd to be the same.

3.

To determine

Introduction: Job costing is a technique of determine the cost of a manufacturing job rather than the process of the job. Manufacturing overhead is applied to product or job order is determined as predetermined overhead.

To compute: the unit product cost for the year, net operating income using absorption costing and reconciliation statement.

Answer to Problem 5.29C

Income statement is given below.

Explanation of Solution

1. Year 1:

Fixed manufacturing overhead per unit

  $\begin{array}{l}fixedmanufacturingoverhead=\frac{(Totalfixedmanufacturingoverhead)}{numberofunitsprodduced}\\ =\frac{\$660,000}{100,000units}\\ =\$6.6\end{array}$

Particular	Per unit costs $
Direct materials	32
Direct lobar	20
Variable manufacturing	4
Fixed manufacturing overhead	6.6
Unit product cost by using absorption costing	62.60

Year 2:

Fixed manufacturing overhead per unit

  $\begin{array}{l}fixedmanufacturingoverhead=\frac{(Totalfixedmanufacturingoverhead)}{numberofunitsprodduced}\\ =\frac{\$660,000}{75,000units}\\ =\$8.80\end{array}$

Particular	Per unit costs $
Direct materials	32
Direct lobar	20
Variable manufacturing	4
Fixed manufacturing overhead	8.80
Unit product cost by using absorption costing	64.80

Year 3:

Fixed manufacturing overhead per unit

  $\begin{array}{l}fixedmanufacturingoverhead=\frac{(Totalfixedmanufacturingoverhead)}{numberofunitsprodduced}\\ =\frac{\$660,000}{80,000units}\\ =\$8.25\end{array}$

Particular	Per unit costs $
Direct materials	32
Direct lobar	20
Variable manufacturing	4
Fixed manufacturing overhead	8.25
Unit product cost by using absorption costing	64.25

2. Income statement using absorption costing:

Year 1:

  $\begin{array}{l}\mathrm{cost}ofgoodssold=unitsold\times unitproduct\cos t\\ =80,000units\times \$62.60\\ =\$5,008,000\end{array}$

Particular	Amount
Sales	6,000,000
Cost of goods sold	5,008,000
Contribution	992,000
Less: selling and administrative expense	360,000
Net operating income	632,000

Year 2:

  $\begin{array}{l}\mathrm{cost}ofgoodssold=unitsold\times unitproduct\cos t\\ =(20,000units\times \$62.60)+(70,000\times \$64.80)\\ =\$5,778,000\end{array}$

Particular	Amount
Sales	6,750,000
Cost of goods sold	5,788,000
Contribution	962,000
Less: selling and administrative expense	390,000
Net operating income	572,000

Year 3:

  $\begin{array}{l}\mathrm{cost}ofgoodssold=unitsold\times unitproduct\cos t\\ =(20,000units\times \$62.60)+(70,000\times \$64.25)\\ =\$4,821,500\end{array}$

Particular	Amount
Sales	5,625,000
Cost of goods sold	4,821,500
Contribution	803,500
Less: selling and administrative expense	345,000
Net operating income	458,500

4.

To determine

Introduction: Job costing is a technique of determine the cost of a manufacturing job rather than the process of the job. Manufacturing overhead is applied to product or job order is determined as predetermined overhead.

To compute: the unit product cost for the year, net operating income using absorption costing and reconciliation statement.

Answer to Problem 5.29C

Income statement is given below.

Explanation of Solution

1. Company using absorption costing LIFO inventory assumption

Year 1:

  $\begin{array}{l}fixedmanufacturingoverhead=\frac{(Totalfixedmanufacturingoverhead)}{numberofunitsprodduced}\\ =\frac{\$660,000}{100,000units}\\ =\$6.6\end{array}$

Particular	Per unit cost
Direct materials	32
Direct labor	20
Variable manufacturing overhead	4
Fixed manufacturing overhead	6.6
Unit product cost by using	62.60

Year 2:

  $\begin{array}{l}fixedmanufacturingoverhead=\frac{(Totalfixedmanufacturingoverhead)}{numberofunitsprodduced}\\ =\frac{\$660,000}{75,000units}\\ =\$8.80\end{array}$

Particular	Per unit cost
Direct materials	32
Direct labor	20
Variable manufacturing overhead	4
Fixed manufacturing overhead	6.6
Unit product cost by using	64.80

Year 3:

  $\begin{array}{l}fixedmanufacturingoverhead=\frac{(Totalfixedmanufacturingoverhead)}{numberofunitsprodduced}\\ =\frac{\$660,000}{80,000units}\\ =\$8.25\end{array}$

Particular	Per unit cost
Direct materials	32
Direct labor	20
Variable manufacturing overhead	4
Fixed manufacturing overhead	6.6
Unit product cost by using	64.25

2. Income statement using absorption costing
Year 1:

  $\begin{array}{l}\mathrm{cost}ofgoodssold=unitsold\times unitproduct\cos t\\ =(80,000units\times \$62.60)\\ =\$5,008,000\end{array}$

Particular	Amount
Sales	6,000,000
Cost of goods sold	5,008,000
Contribution	992,000
Less: selling and administrative expense	360,000
Net operating income	632,000

Year 2:

  $\begin{array}{l}\mathrm{cost}ofgoodssold=unitsold\times unitproduct\cos t\\ =(75,000units\times \$64.80)+(15,000\times \$62.60)\\ =\$5,799,000\end{array}$

Particular	Amount
Sales	6,750,000
Cost of goods sold	5,799,000
Contribution	962,000
Less: selling and administrative expense	390,000
Net operating income	561,000

Year 3:

  $\begin{array}{l}\mathrm{cost}ofgoodssold=unitsold\times unitproduct\cos t\\ =(75,000units\times \$64.25)\\ =\$4,818,750\end{array}$

Particular	Amount
Sales	5,625,000
Cost of goods sold	4,818,000
Contribution	806,250
Less: selling and administrative expense	345,000
Net operating income	461,250