Question

Ceradyne Manufacturing produces snow shovels. The selling price per snow shovel is $29.00. There is no beginning inventory. Costs involved in production are: Direct material $5.00 Direct labor 3.00 Variable manufacturing overhead 2.00 Total variable manufacturing costs per unit $10.00 Fixed manufacturing overhead per year $223,100 In addition, the company has fixed selling and administrative costs of $155,200 per year. During the year, Ceradyne produces 48,500 snow shovels and sells 43,490 snow shovels.

What is the value of ending inventory using full costing? Value of ending inventory $

What is the value of ending inventory using variable costing? Value of ending inventory $

Calculate the difference in full costing net income and variable costing net income without preparing either income statement. Difference in net income $

What is cost of goods sold using full costing? Cost of goods sold $

What is cost of goods sold using variable costing? Variable cost of goods sold $

What is net income using full costing? Net income

What is net income using variable costing? Net income $

How much fixed manufacturing overhead is in ending inventory under full costing? Fixed manufacturing overhead in ending inventory $ Compare this amount to the difference in the net incomes calculated in Exercise 5-13. The amount of fixed manufacturing overhead in ending inventory under full costing is equal togreater thanless than the difference in net income between full costing and variable costing.

Answer 1

1) Value of ending inventory using full costing :

Direct Material	$5
Direct Labour	$3
Variable Manufacturing Overhead	$2
Fixed Manufacturing Overhead (223100/48500)	$4.6
Per Unit Cost	$14.6

Ending Inventory = Opening Inventory+Units Produced-Units Sold = 0+48500-43490 = 5010 units

Value of ending inventory using full costing = 5010Units*$15 =$73146

2) Unit Cost under Variable Costing :

Direct Material	$5
Direct Labour	$3
Variable Manufacturing Overhead	$2
Per Unit Cost	$10

Value of ending inventory using Variable costing = 5010Units*$10 =$50100

3) Net Income under Full Costing :

Sales (43490*$29)	$1261210
Less : Cost of Goods Sold (43490*$14.6)	634954
Gross Profit	626256
Less : Fixed Selling and Administrative Cost	155200
Net Income	$471056

4) Net Income under Variable Costing :

Sales (43490*$29)	1261210
Less : Cost of Goods Sold (43490*$10)	434900
Contribution Margin	826310
Less : Fixed Manufacturing Overhead	223100
Less : Fixed Selling and Administrative Cost	155200
Net Income	$448010

5) Difference in Net Income = $471056-$448010 = $23046

6) Cost of Goods Sold Using Full Costing = 43490 Units * $14.6 = $634954

7) Cost of Goods Sold Using Variable Costing = 43490 Units * $10 = $434900

8) Fixed Manufacturing Overhead in Ending Inventory = $223100*5010 units/48500 units = $23046

9) Comparison of Fixed Manufacturing Overhead in Ending Inventory with Differnce in Net Incomes:

Fixed Manufacturing Overhead in Ending Inventory	$23,046
Difference in Net Income	$23,046
	$0

The amount of fixed manufacturing overhead in ending inventory under full costing is equal to the difference in net income between full costing and variable costing.