Question

Consider the following information for the Intermediate Company for the year 2018:

Units in Beginning Inventory                                      0

Units produced                                                     9,500

Units Sold                                                             5,700

Units Selling Price                                                 $350

Variable costs per unit:

   Direct Materials                                                  $106

   Direct Labor                                                          $42

   Variable Overhead                                                $30

Fixed costs:

   Fixed Costs per unit produced                              $23

   Fixed Selling & Administrative Costs        $440,000

A) Compute Unit Product Cost under Absorption Costing & Variable Costing

B) Compute total operating profit under absorption costing

C) Compute total operating profit under variable costing

D) Compute the value of ending inventory

Answer 1

Answer:-A)- Unit product cost under Absorption costing:-Direct materials + Direct Labor+ Variable manufacturing overhead + fixed manufacturing overhead

=$106+$42+$30+$23 = $201 per unit

Unit product cost under variable costing:-Direct materials + Direct Labor+Variable manufacturing overhead

=$106+$42+$30= $178 per unit

B)-

Intermediate Company
Contribution Margin statement (Using absorption costing approach)
Particulars			Amount
			$
Sales (a)	5700 units*$350 per unit		1995000
Less:- cost of goods sold (b)
Opening inventory
Add:- cost of goods manufatured		1691000
Direct materials	9500 units*$106 per unit	1007000
Direct labor	9500 units*$42 per unit	399000
Variable factory overhead	9500 units*$30 per unit	285000
Fixed overhaed	9500 units*$23 per unit	218500
Cost of goods available for sale		1909500
Less:- Closing inventory	3800 units*$201 per unit	763800	1145700
Gross contribution margin C= a-b			849300
Less:-Variable selling & administrative exp.
Contribution margin			849300
Less:- Fixed costs
Selling & administrative exp.			440000
Net Income			409300

Intermediate Company
Contribution Margin statement (Using variable costing approach)
Particulars			Amount
			$
Sales (a)	5700 units*$350 per unit		1995000
Less:- Variable cost of goods sold (b)
Opening inventory
Add:- Variable cost of goods manufatured		1691000
Direct materials	9500 units*$106 per unit	1007000
Direct labor	9500 units*$42 per unit	399000
Variable factory overhead	9500 units*$30 per unit	285000
Variable cost of goods available for sale		1691000
Less:- Closing inventory	3800 units*$178 per unit	676400	1014600
Gross contribution margin C= a-b			980400
Less:-Variable selling & administrative exp.
Contribution margin			980400
Less:- Fixed costs
Manufacturing overhead	9500 units*$23 per unit		218500
Selling & administrative exp.			440000
Net Income			321900

D)- Value of ending inventory=

Under Absorption costing =$763800

Under Variable costing =$676400

Closing inventory =9500 units-5700 units =3800 units