Question

Vinson Co. manufactures and sells one product. Assume the selling price for each item is $225/per unit. The following information pertains to the company’s first two years of operation:

Variable Costs Per Unit:

Manufacturing:

Direct Materials $34/unit

Direct Labor $23/unit

Variable Selling and Administrative $4/unit

Variable Manufacturing Overhead $6/unit

Fixed Costs:

Fixed Manufacturing Overhead $720,000

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:

Beginning Inventory (units): 0

Units Produced: 120,000

Units Sold: 90,000

Ending Inventory (units): 30,000

YEAR 2:

Beginning Inventory (units): 30,000

Units Produced: 100,000

Units Sold: 115,000

Ending Inventory (units): 15,000

FOR YEAR 1 PLEASE ANSWER THE FOLLOWING QUESTIONS:

A. Calculate Vinson’s Unit Product Cost/Unit using the Variable Cost Method and Absorption Cost Method.

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

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

D. Prepare the Company’s YEAR 1 Contribution Margin Income Statement---properly label and show all amounts.

Answer 1

A.

Unit Product Cost
	Absorption Costing	Variable Costing
Direct Material	$           34.00	$           34.00
Direct Labor	$           23.00	$           23.00
Variable Manufacturing Overhead	$             6.00	$             6.00
Fixed Manufacturing Overhead	$             6.00
Total Unit Product Cost	$           69.00	$           63.00

B.

Cost of Goods Sold - Variable Cost = 90000 x $63 = $5,490,000

C.
Cost of Goods Sold - Absorption Cost = 90000 x $69 = $6,210.000

D.

Income Statement (Variable Costing)
Sales		$ 20,250,000
Cost of Goods Sold
Beginning Inventory	$                  -
Plus Cost of Goods Manufactured	$   7,560,000
Less Ending Inventory	$   1,890,000
Cost of Goods Sold		$    5,670,000
Variable Selling and administrative		$       360,000
Contribution Margin		$ 14,220,000
Fixed Manufacturing OH		$       720,000
Fixed Selling and administrative		$       120,000
Operating Income		$ 13,380,000