Chapter 6: Variable Costing (Exercises with Answers)

Chapter 6: Variable Costing DeAnne Company produces a single product. The company's variable costing income statement for August appears below: DeAnne Company Income Statement For the month ended August 31 Sales ($15 per unit) ...... ....... .. ....... . . Variable expenses: Variable cost of goods sold ........ . Variable selling expense ..... ....... . Total variable expenses ... .... ... ... .... . Contribution margin ........ .... ......... .. FL"ed expenses: Fixed manufacturing .... .......... .... . Fixed selling and administrati\'e . Total fixed expenses ........ ...... ........ . Net operating income .... .. ........... ... . $600.000 360,000 80,000 440,000 160,000 105,000 .0.. ,,::;,~ ./ - ,t 3 ( ' J 35,000 140,000 $ 20,000 The company produced 35,000 units in August and the beginning inventory consisted of 8,000 units. Variable production costs per unit and total fixed costs have remained constant over the past several months. 102. The value of the company's inventory on August 31 under the absorption costing method is: A. $27,000 C B. $42,000 C. $36,000 ' ) D. $47,000 'L..V', Lv. ( fl \ Co c;(t ) """""'"'- - - - - ­ «C'111) g~ I 11:0, 07f'0 5olc:l 35fPOD ~ JA,ueet YT:J 5,6lrl> ~ 3b,tJVD t PMolJ­ ... ) l~ ,(JEt ~ ~~oro~ I~ ­- P< A 1>'1 ~3~~ ~ uJ + 3 :s~ ~ X tl2-/~ 102. The value of the company's inventory on August 31 under the absorption costing method is: A. $27,000 B. $42,000 C. $36,000 D. $47,000 Units sold = $600,000 + $15 per unit = 40,000 units Units in beginning inventory + Units produced =Units sold + Units in ending inventory 8,000 units + 35,000 units = 40,000 units + Units in ending inventory Units in ending inventory =8,000 units + 35,000 units· 40,000 units =3,000 units Variable cost of goods sold ($360,000 ~ 40,000 units) ............................... $9 Fixed manufacturing overhead cost ($105,000 ~ 35,000 units) ...... .. .......... _ _ _~3 Absorption costing unit product cost (a)............................................. ........ $12 ==== Units in ending inventory (b).................................................................... .. . 3,000 Value of ending inventory under absorption costing (a) x (b) .... .. .. ....... .. .. . $36,000 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Application Learning Objective: 06·01 Explain how variable costing differs from absorption costing and compute unit product AI't'~+HU.:tp!r each method Level: Hard DeAnne Company produces a single product. The company's variable costing income statement for August appears below: DeAnne Company Income Statement For the month ended August 31 Sales ($15 per unit) ... .......... .......... . Variable expenses: Variable cost of goods sold ........ . Variable selling expense .. .... ...... . Total variable e>q)enses ......... ... ..... . Contribution margin ... .... ...... ...... ... . FL'\:ed expenses : Fixed manufacturing .. ..... .. ......... . Fixed selling and administrative. Total fixed expenses ...................... . Net operating income .. .... .............. . $600,000 360,000 80,000 440,000 160,000 105,000 35,000 140,000 $ 20,000 The company produced 35,000 units in August and the beginning inventory consisted of 8,000 units. Variable production costs per unit and total fixed costs have remained constant over the past several months. 103. Under absorption costing, for the month ended August 31, the company would report a: A. $20,000 profit B. $5,000 loss . 35 00 r 't D. $5,000 profit < )" -ifP ~f:r5 -­ ~ - --==> 5< :tk N1.tHs ~ < - 103. Under absorption costing, for the month ended August 31, the company would report a: A. $20,000 profit B. $5,000 loss C. $35,000 profit D. $5,000 profit Yariable cost of goods sold ($360,000 + 40,000 units) ............................... Fixed manufacturing overhead cost ($105,000 + 35,000 units).................. Absorption costing unit product cost .......................................................... Sales ($15 per unit x 40,000 units) .................................... . Cost of goods sold ($12 per unit x 40,000 units) ............... . Gross margin ...................................................................... . Selling and administrative expenses ($80,000 + $35,000). Net operating income ........................................................ .. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement $600,000 480,000 120,000 115,000 $ 5,000 $9 3 $12 Galino Company, which has only one product, has provided the following data concerning its most recent month of operations: Selling price .... ..................... .... ... . ........... Units Units lTnits Units in beginning inventory.. ................ produced ...... ... ...... ..................... .. . sold .......... ...... ............................... . in ending inventory ...................... . Variable costs per unit: Direct materials ........ .. .......................... . Direct labor .... ... ....................... .... ........ .. Variable manufacturing overhead .. ...... .. Variable selling and administrative ..... .. Fixed costs: Fixed manufacturing overhead ............ .. Fixed selling and adminish'ative ......... .. _~1I.Ko...I.'U0i.J00I0!~ 1 contribution VG 4- 1q :> ---- ------NI - S'l \Ie (; LtC? c,M - yG, Vv 0 $104,400 $13,000 margin for the month under the variable costing approach is: A. $124,800 B. 49,400 C. $20,400 D. $143,000 --- $99 106. T total contribution margin for the month under the variable costing approach is: A. $124,800 B. $49,400 C. $20,400 D. $143,000 Di..ect mate..ials .................................... $27 Di..ect labo............................................. 11 Variable manufactu..ing overhead.... .. ... 6 Variable selling and administ..ative ...... 7 --Variable expense per uniL............. ...... $51 Selling price per unit ..... ....................... $99 Va..iable expense pe .. uniL ................... _ _ _.. .;. 5. . ;. 1 Cont..ibution ma ..gin pe .. unit (a) .......... $48 Units sold (b) ................ ............ ... ......... 2,600 Total cont..ibution ma..gin (a) x (b)....... $124,800 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Application Learning Objective: 06·01 Explain how variable costing differs from absorption costing and compute unit product costs under each method Lea ' 'ective: 06·02 Prepare income statements using both variable and absorption costing Level: Medium Galino Company, which has only one product, has provided the following data concerning its most recent month of operations: Selling price ............ .......... ....... ....... ........ Units Units IJnits Units $99 in beginning inventory ................ .. produced ...................................... . sold .............................................. .. in ending inventory ...... ................ . @ _,600 300 Variable costs per unit: Direct materials .................................... . Direct labor .......................................... .. Variable manufacturing overhead ........ .. Variable selling and administrative ...... . Fixed costs: Fixed manufacturing overhead ............ .. Fixed selling and administrative .......... . 107. The t03 gross margin for the month under the absorption costing approach is: $49,400 B. $18,200 C. $73,400 D. $124,800 C A. Ahs 5 ' Cf1 c&5 -&. 11 -&p - ­ $~,;t- - N1kbs ~O 107. The total gross margin for the month under the absorption costing approach is: A. $49,400 B. $18,200 C. $73,400 D. $124,800 Unit product cost under absorption costing: Direct materials ........................................................................................... Direct labor.................................................................................................. Variable manufacturing overhead... ............................................................. Fixed manufacturing overhead cost ($104,400 -;- 2,900 units produced) ... Absorption costing unit product cost .......................................................... Sales ($99 per unit x 2,600 units) ....................... .. Cost of goods sold ($80 per unit x 2,600 units) ... . (~ross nlargin ........................................................ . $27 11 6 36 $80 $257,400 208,000 $ 49,400 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Application Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method Lear . . tive: 06-02 Prepare income statements using both variable and absorption costing evel: Medium Galino Company, which has only one product, has provided the following data concerning its most recent month of operations: Selling price ........... ............... ....... ........... lJnits Units Units Units in beginning inventory.................. produced ...... ........ ............. ............ sold ..................... .. ......................... in ending inventory.... ................... Variable costs pel' unit: Direct materials ............ .... ................... .. Direct labor .................. ...... ................... . Variable manufacturing overhead ........ .. Variable selling and administrative ...... . Fixed costs: Fixed manufacturing overhead ............. . Fixed selling and administrative .......... . $99 0 2,900 2,600 300 $27 $11 $6 $7 $104,400 $13,000 ~ '2.Cf ((U -:: 108. What is the total period cost for the month under the variable costing approach? A. $31,200 B. $104,400 C. $117,400 ~135,60D vc fr oj Ce'zd­ PMl-d Cost==:> 108. What is the total period cost for the month under the variable costing approach? A $31 ,200 B. $104,400 C. $117,400 D. $135,600 Variable selling and administrative ($7 per unit x 2,600 units sold) ......... .. Fixed manufacturing overhead .......... ... .. Fixed selling and administrative .... ...... .. Total period costs .......... .. .. ..... .. .. .......... .. $ 18,200 104,400 13,000 $135,600 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Application Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method L bjective: 06-02 Prepare income statements using both variable and absorption costing Level: Hard Galino Company, which has only one product, has provided the following data concerning its most recent month of operations: Selling price ............. .... .. .. .............. ... ..... . Units Units Units Units in beginning inventory ...... ........... . produced ..................... ................ .. sold .. .... .... ......... ...... .. .............. .... .. . in ending inventory ...................... . Variable costs per unit: Direct materials ........................ .. .... ...... . Direct labor ............ .............................. .. Variable manufacturing overhead ........ .. Variable selling and administrative ..... .. Fixed costs: Fixed manufacturing overhead ........... . .. Fixed selling and administrative ..... .... .. $99 o 2,900 2,600 300 $27 $11 $6 $7 $104,400 $13,000 109. What is the total period cost for the month under the absorption costing approach? C A. $104,40~ B. $31,200 C. $13,000 D. $135,600 Prod- 6> CZt- D{V1, DLI VMO/~I FM'DH -=-) p~ 6i!-:=:'/ ~ 109. What is the total period cost for the month under the absorption costing approach? A. $104,400 B. $31,200 C. $13,000 D. $135,600 Variable selling and administrative ($7 pel' unit x 2,600 units) ........................ . Fixed selling and administrative ........... . Total period costs. ..... ............... ............. . $18,200 13,000 $31,200 ----'-­ AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Application Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method Le five: 06-02 Prepare income statements using both variable and absorption costing 182. Leigh Company, which has only one product, has provided the following data concerning its most recent month of operations: Selling pl'ice .................... ...... ... .......... ... ........ . $100 Units Units Units Units 300 1,200 in beginning invento..y ....... ...... ......... . pl'oduced .............................. .... ..... ...... . sold .................................. ............ .... ..... . in ending invento ..y ......... ....... ........... . Va ..iable costs peJ' unit: Di ..ect nUltel'ials .............. ...... .. .. .. ......... ....... . Di..ect labol' ........... ........... ... ... ............ .... ...... Va ..iable manufactu ..ing ovel·head ......... ... Val'iable selling and administ..ative ......... . Fixed costs: Fixed manufacturing ove .. head ... ... .. ..... ... . Fixed selling and administ..ative ..... ......... . 1,400 100 $17 $59 $4 $8 $9,600 $1,40£1 The company produces the same number of units every month, although the sales in units vary from month to month. The company's variable costs per unit and total fixed costs have been constant from month to month. Required: a. What is the unit product cost for the month under variable costing? b. What is the unit product cost for the month under absorption costing? c. Prepare a contribution format income statement for the month using variable costing. d. Prepare an income statement for the month using absorption costing. e. Reconcile the variable costing and absorption costing net operating incomes for the month. a. & b. Unit product costs Variable costing: Direct materials.. ................................. Direct labor ................ ...... ............ ........ Variable manufaduring overhead........ Unit product cost ................................. $17 59 4 $80 Absorption costing: Direct materials............ ...... .. ............... Direct labor .......................................... Variable manufacturing overhead........ Fixed manufacturing overhead............ Unit product cost .... .......... ................... $17 59 4 8 $88 c. & d. Income statements Variable costing income statement Sales ................................................................ . Val'iable expenses: Val'iable cost of goods sold ........................ .. Variable selling and administrative .......... . Contribution margin .................................. .. Fixed expenses: Fixed manufacturing overhead ................ .. Fixed selling and administrative ............... . Net operating income ................................. .. $140,000 $112,000 11,200 123,200 16,800 ------~--------~- 9,600 1,400 11,000 $ 5,800 ------~--------~- Absorption costing income statement Sales .......................................................... . Cost of goods sold ................................... .. Gross margin ............................................ . Selling and administrative expenses: Variable selling and administrntive ......... .. Fixed selling nnd administrative .............. . Net opernting income ............................... . $140,000 123,200 16,800 $11,200 1,400 e. Reconciliation Vnrinble costing net operating income ............................... .. Deduct fixed manufacturing overhead costs relensed from inventol1' under absorption costing ............................... . .. Absorption costing net operating income .......................... .. 12,600 $ 4,200 $5,800 (1,600) $4,200 AACSB: Analytic; AICPA BB: Critical Thinking;AICPA FN: Measurement; Bloom's: Application; Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method; Learning Objective: 06-02 Prepare income statements using both variable and absorption costing; Learning Objective: 06-03 Reconcile net operating incomes and explain why the two amounts differ; Level: Hard