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Exercise 6-2 (Algo) Variable Costing Income Statement; Explanation of Difference in Net Operating Income [LO6-2] Ida...
Exercise 6-2 (Algo) Variable Costing Income Statement; Explanation of Difference in Net Operating Income [LO6-2]
Ida Company produces a handcrafted musical instrument called a gamelan that is similar to a xylophone. The gamelans are sold for $980. Selected data for the company’s operations last year follow:
| Units in beginning inventory | 0 | |
| Units produced | 240 | |
| Units sold | 225 | |
| Units in ending inventory | 15 | |
| Variable costs per unit: | ||
| Direct materials | $ | 140 |
| Direct labor | $ | 360 |
| Variable manufacturing overhead | $ | 35 |
| Variable selling and administrative | $ | 20 |
| Fixed costs: | ||
| Fixed manufacturing overhead | $ | 66,000 |
| Fixed selling and administrative | $ | 28,000 |
The absorption costing income statement prepared by the company’s accountant for last year appears below:
| Sales | $ | 220,500 |
| Cost of goods sold | 182,250 | |
| Gross margin | 38,250 | |
| Selling and administrative expense | 32,500 | |
| Net operating income | $ | 5,750 |
Required:
1. Under absorption costing, how much fixed manufacturing overhead cost is included in the company's inventory at the end of last year?
2. Prepare an income statement for last year using variable costing.
Solutions
Expert Solution
Answer 1.
Fixed manufacturing overhead per unit = Fixed manufacturing
overhead / Units produced
Fixed manufacturing overhead per unit = $66,000 / 240
Fixed manufacturing overhead per unit = $275
Fixed manufacturing overhead deferred in inventory = Fixed
manufacturing overhead per unit * Units in ending inventory
Fixed manufacturing overhead deferred in inventory = $275 *
15
Fixed manufacturing overhead deferred in inventory = $4,125
Answer 2.
Unit product cost = Direct materials + Direct labor + Variable
manufacturing overhead
Unit product cost = $140 + $360 + $35
Unit product cost = $535
Variable cost of goods sold = Unit product cost * Units
sold
Variable cost of goods sold = $535 * 225
Variable cost of goods sold = $120,375
Variable selling and administrative expenses = Variable selling
and administrative expenses per unit * Units sold
Variable selling and administrative expenses = $20 * 225
Variable selling and administrative expenses = $4,500
ekkarill92 answered 1 year agoRelated Solutions
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Units produced
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Units sold
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Jorgansen Lighting, Inc., manufactures heavy-duty street
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Year 3
Inventories
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The company’s absorption costing income statement for the year
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Whitman Company
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Sales (41,000 units × $41.10 per unit)
$
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Cost of goods sold (41,000 units × $21 per unit)
861,000
Gross margin
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Selling and administrative expenses
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Direct labor
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16
Variable manufacturing overhead
$
4
Variable selling and administrative
$
3
Fixed costs per year:
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Fixed selling and administrative expenses
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During its first...
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Direct labor
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Variable manufacturing overhead
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Variable selling and administrative
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Fixed costs per year:
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Fixed selling and administrative expenses
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Direct labor
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Variable selling and administrative
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$
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924,000
Gross margin
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