Question

Music World produces​ student-grade violins for beginning violin students. The company produced 2 comma 500 violins in its first month of operations. At​ month-end, 500 finished violins remained unsold. There was no inventory in work in process. Violins were sold for $ 125.00 each. Total costs from the month are as​ follows:

Direct materials used. . . . . . . . . . . . . . . . . . . . . . . .

$119,500

Direct labor. . . . . . . . . . . . . . . . . . . . . . . . . . . .

$60,000

Variable manufacturing overhead. . . . . . . . . . . . . .

$28,000

Fixed manufacturing overhead. . . . . . . . . . . . . . . . .

$42,500

Variable selling and administrative expenses. . . . .

$8,000

Fixed selling and administrative expenses. . . . . . .

$13,000

Compute the following amounts that would be shown on these income​ statements:

Requirement 1. Gross Profit

Identify the​ formula, then compute the gross profit.

-

=

Gross profit

-

=

Requirement 2. Contribution Margin

Identify the​ formula, then compute the contribution margin.

-

=

Contribution margin

-

=

Requirement 3. Total expenses shown below the gross profit line

+
=	Total expenses below the gross profit line

Requirement 4. Total expenses shown below the contribution margin line

+
=	Total expenses below the contribution margin line

Requirement 5. Dollar value of ending inventory under absorption costing

The dollar value of ending inventory under absorption costing is $

.

Requirement 6. Dollar value of ending inventory under variable costing

The dollar value of ending inventory under variable costing is $

.

Requirement 7. Which income statement will have a higher operating​ income? By how​ much? Explain.

The		income statement will have a higher operating income by $			. Under absorption costing
			Under variable costing, these costs are

Choose from any list or enter any number in the input fields and then continue to the next question.

Answer 1

1) Gross Profit = Net Sales - Cost of Goods Sold

= (2000*$125) - $200000

= $250000 - $200000

= $50000

Cost of Goods Sold = No. of Units Sold * Cost Per Unit

= (2500-500) * $100

= 2000 * $100

= $200000

Cost Per Unit = Total Cost / No. of Unit

= ($119500+$60000+$28000+$42500) / 2500

= $250000 / 2500

= $100 per Violins

2) Contribution Margin = Sales Revenue - Variable Cost

= $250000 - ($119500+$60000+$28000+$8000)

= $250000 - $215500

= $34500

3) Expense Shown below the Gross Profit line :-

= Variable Selling and Administrative Expense + Fixed Selling and Administrative Expense

= $8000 + $13000

= $21000

4) Expense Shown below Contribution Margin line :-

= Fixed Manufacturing Overhead + Fixed Selling and Administrative Expenses

= $42500 + $13000

= $55500

5) Ending Inventory Under Absorption Costing = Unsold Violins * Cost Per Violins

= 500 * $100

= $50000

6) Ending Inventory Under Variable Costing :-

= Unsold Violins * Variable Cost Per Violins

= 500 * ($119500+$60000+$28000)/2500

= 500 * $83

= $41500