Question

Vinson Co. manufactures and sells one product.  Assume the selling price for each item is $200/per unit.  The following information pertains to the company’s first two years of operation:

Variable Costs Per Unit:

Manufacturing:

                  Direct Materials                                                                        $32/unit

                  Direct Labor                                                              $20/unit

                  Variable Manufacturing Overhead               $4/unit

Variable Selling and Administrative                              $3/unit

Fixed Costs:

Fixed Manufacturing Overhead                                       $660,000

Fixed Selling and Administrative                                    $120,000

Additionally, Vinson Company provides you with the following inventory flow information in terms of units for YEAR 1 & YEAR 2:

                                                                                                            YEAR 1                     YEAR 2                     

Beginning Inventory (units)                                               0                                 20,000                    

Units Produced                                                                         100,000                 75,000                    

Units Sold                                                                                     80,000                    90,000                    

Ending Inventory (units)                                                                        20,000                    5,000     

FOR YEAR 2 PLEASE ANSWER THE FOLLOWING QUESTIONS:

Question 1:   Using the following table, calculate Vinson’s Unit Product Cost/Unit using the Variable Cost Method and Absorption Cost Method.

- Using the Variable Cost Method----Compute Cost Goods Sold:

-Prepare the Company’s YEAR 2 Contribution Margin Income Statement---properly label and show all amounts

-Using the Absorption Cost Method----Compute Cost Goods Sold:

Answer 1

Given
Particulars	Amount($)
Selling Price per Unit	200
Direct Materials	32
Direct Labor	20
Variable Manufacturing Overhead	4
Variable Selling and Administrative	3
Fixed Costs:
Fixed Manufacturing Overhead	660000
Fixed Selling and Administrative	120000

Calculation of Cost per Unit Using Variable cost method
Particulars	Amount($)
Direct Materials	32
Direct Labor	20
Variable Manufacturing Overhead	4
Total	56

	Calculation of Cost per Unit Using Absorption cost method
	Particulars	Amount($)
	Direct Materials	32
	Direct Labor	20
	Variable Manufacturing Overhead	4
A	Variable Expenses	56
	Fixed Manufacturing Expenses (a)	$660000
	Total production in Year-2 (b)	75000 units
B	Fixed overhead per unit produced ( a/b)	$8.8
A+B	Total product cost under absorption costing system	64.8

Cost of Goods Sold using variable costing method
Total Units sold during year 2	90000 units
Cost per unit using variable costing Method (refer table 2)	$56
Cost of Goods Sold	$5,040,000

	Year-2
	contribution margin income statement	Amount ($)
A	Total Sales for year -2 (90000(u) * $ 200.00)	1,80,00,000
	Direct Materials (90000(u) * $ 32.00)	2880000
	Direct Labor (90000(u) * $ 20.00)	1800000
	Variable Manufacturing Overhead (90000(u) * $ 4.00)	360000
	Variable Selling and Administrative (90000(u) * $ 3.00)	270000
B	Total Variable Cost	5310000
C= A-B	Contribution Margin	1,26,90,000
	Fixed Manufacturing Overhead	660000
	Fixed Selling and Administrative	120000
D	Total Fixed Cost	780000
E = C-D	Net profit/(loss)	1,19,10,000

Cost of Goods Sold under Absorption costing system
Particulars	Units (A)	Cost per unit (B)	Value (A*B)
Total units sold	90000
Opening stock from the year -1	20000	62.6	1252000
Current year Production	70000	64.8	4536000
Total			5788000