Question

ABC manufacturing firm, planned and manufactured 10,000 units of its single product in 2017, its first year of operation. Variable manufacturing cost was $40 per unit produced. Variable operating (non- manufacturing) cost was $10 per unit sold.

Planned and actual fixed manufacturing costs were $200,000. Planned and actual fixed operating (non- manufacturing) costs totaled $100,000.

ABC sold 8,000 units of product at $100 per unit.

Find, CM for 2017. Gross profit for 2017. Operating income under direct or variable costing for 2017. Operating income under total or absorption costing for 2017. Inventory under direct or variable costing for 2017. Please show calculations.

Answer 1

• All working forms part of the answer
• Working #1

Working	Direct or Variable Costing
A = 8000 units x $ 100]	Sales	$        800,000.00
	Less: Variable cost
B = 8000 x $40	Manufacturing	$        320,000.00
C = 8000 x $ 10]	Operating	$           80,000.00
D = B+C	Total Variable cost	$        400,000.00
E = A - D	Contribution Margin or CM for 2017	$        400,000.00
	Less: Fixed Cost
F	Manufacturing	$        200,000.00
G	Operating	$        100,000.00
H = E - F - G	Operating Income for 2017	$        100,000.00

• Working #2

A	Total Fixed Manufacturing Cost	$      200,000.00
B	Units produced	10,000
C = A/B	Fixed cost per unit	$                20.00
D	Variable Manufacturing cost	$                40.00
E = C+D	Total manufacturing cost per unit	$                60.00

Working	Absorption Costing
A = 8000 units x $ 100]	Sales	$      800,000.00
B = 8000 units x $ 60	Less: Cost of Goods Sold	$      480,000.00
C = A - B	Gross Profit for 2017	$      320,000.00
	Less: Operating Expenses
D = 8000 x $ 10	Variable	$        80,000.00
E	Fixed	$      100,000.00
F = C - D - E	Operating Income for 2017	$      140,000.00

• Requirements, based on above Workings

1	CM for 2017	$      400,000.00
2	Gross Profits for 2017	$      320,000.00
3	Operating Income under Variable Costing	$      100,000.00
4	Operating Income under Absorption Costing	$      140,000.00

• Other Requirement

Working and answer

Working		Direct or Variable Costing	Absorption Costing
A	Units in Inventory	2,000	2,000
B	Cost for Valuation	$                   40.00 [Variable manufacturing cost per unit]	$                  60.00 [see Working 2]
C = A x B	Value of Inventory	$           80,000.00 = Answer	$        120,000.00