Chapter 19: Quick Study

To solve each of these Quick Study (QS) exercises, you will need to understand and apply concepts related to absorption costing, variable costing, contribution margin, and the distinctions between these costing methods. Let's go through the relevant QS exercises one by one with some guidelines and formulas: QS 19-1 & QS 19-2: Computing Unit Costs 1. QS 19-1: Absorption Costing Unit Cost Calculation o Formula: Absorption Costing Unit Cost=Direct Materials+Direct Labor+Variab le Overhead+Fixed Overhead per Unit o Fixed Overhead per Unit: Total fixed manufacturing overhead divided by the number of units produced. 2. QS 19-2: Variable Costing Unit Cost Calculation o Formula: Variable Costing Unit Cost=Direct Materials+Direct Labor+Variable Overhead o Here, fixed overhead costs are not included in product costs under variable costing. QS 19-3: Classifying Product and Period Costs • • Absorption Costing: All manufacturing costs (direct and indirect) are considered product costs. Selling and administrative expenses are period costs. Variable Costing: Only variable manufacturing costs are considered product costs. All fixed costs are period costs. QS 19-4: Variable Costing Income Statement for Aces Inc. 1. Steps: Compute Total Sales: Sales price per unit × Number of units sold. o Compute Total Variable Costs: (Variable cost per unit × Units sold) + Variable selling and admin expenses. o Calculate Contribution Margin: Sales - Total Variable Costs. o Deduct Fixed Costs to find the Operating Income. 2. Variable Costing Income Statement Format: o markdown Sales $xx,xxx - Variable Costs ($xx,xxx) --------------------------------------Contribution Margin $xx,xxx - Fixed Costs ($xx,xxx) --------------------------------------Operating Income $xx,xxx QS 19-5: Cost of Ending Inventory using Variable Costing 1. Ending Inventory Cost Formula: Ending Inventory Cost=Ending Units×Variable Cost per Unit QS 19-6: Absorption Costing Income Statement for Aces Inc. 1. Follow a similar process but include fixed manufacturing overhead in product cost. 2. Income Statement Format: markdown Sales $xx,xxx - Cost of Goods Sold ($xx,xxx) --------------------------------------Gross Profit $xx,xxx - Selling & Admin Expenses ($xx,xxx) --------------------------------------Operating Income $xx,xxx QS 19-7: Cost of Ending Inventory using Absorption Costing 1. Ending Inventory Cost Formula: Ending Inventory Cost=Ending Units×Absorption Cost per Unit QS 19-8 to QS 19-12: Various Cost and Profit Calculations • These QS exercises require calculating gross profit, contribution margin, and understanding the effects of overproduction on income using both absorption and variable costing methods. QS 19-23 to QS 19-26: Converting Variable Costing Income to Absorption Costing Income 1. Formula for Conversion: Absorption Costing Income=Variable Costing Income+(Fixed Overhead in Ending Inventory)−(Fixed Overhead in Beginning Inventory) o Multiply fixed overhead per unit by the number of units in inventory to find the fixed overhead amount. QS 19-27 & QS 19-28: Differences in Income between Absorption and Variable Costing • Calculate the income difference based on changes in inventory levels. If production exceeds sales, absorption costing typically results in higher reported income because some fixed costs are deferred to inventory. For each exercise, understanding the formulas and cost classifications is key. If you need specific numbers or formulas applied, feel free to provide the detailed data, and I can work through the calculations for you.