Question

In: Accounting

The level of inventory of a manufactured product has increased by 8,260 units during a period....

The level of inventory of a manufactured product has increased by 8,260 units during a period. The following data are also available:

	Variable	Fixed
Unit manufacturing costs of the period	$14	$6
Unit operating expenses of the period	$3	$5

What would be the effect on income from operations if variable costing is used rather than absorption costing?

a.$49,560 increase

b.$90,860 increase

c.$49,560 decrease

d.$90,860 decrease

A business operated at 100% of capacity during its first month and incurred the following costs:

Production costs (18,200 units):
Direct materials	$172,900
Direct labor	221,900
Variable factory overhead	262,000
Fixed factory overhead	98,600	$755,400

Operating expenses:
Variable operating expenses	$123,000
Fixed operating expenses	41,900	164,900

If 2,000 units remain unsold at the end of the month, what is the amount of inventory that would be reported on the absorption costing balance sheet?

a.$101,132

b.$83,020

c.$85,692

d.$72,176

A business operated at 100% of capacity during its first month, with the following results:

Sales (96 units)		$480,000
Production costs (120 units):
Direct materials	$60,000
Direct labor	15,000
Variable factory overhead	27,000
Fixed factory overhead	24,000	126,000

Operating expenses:
Variable operating expenses	$5,890
Fixed operating expenses	3,070	8,960

What is the amount of the contribution margin that would be reported on the variable costing income statement?

a.$471,040

b.$389,440

c.$479,880

d.$392,510

Expert Solution

1.

Effect on income from operations if absorption costing is used rather than variable costing = 8260 * (14-3) = $90,860

b.$90,860 increase

2. b.$83,020

If 2,000 units remain unsold at the end of the month, the amount of inventory that would be reported on the absorption costing balance sheet = 2000*41.51 = $83,020

Explanation:-

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

=($172,900+$221,900+$262,000+$98,600)/18200 units

= $41.51 per unit

3. d.$392,510

The amount of the contribution margin that would be reported on the variable costing income statement

Income statement (Using Variable costing approach)
Particulars		Amount
		$
Sales		480,000

Less:- Variable Manufacturing Costs:
Direct materials (60,000 / 120 *96)	48,000
Direct labor (15,000 / 120 *96)	12,000
Variable factory overhead (27,000 / 120 *96)	21,600	81,600
Gross Contribution Margin		398,400
Less: Variable Operating Expenses		5,890
Contribution Margin		392,510

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ekkarill92 answered 3 years ago

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