Question

Jupiter Inc., which has only one product, has provided the following data concerning its most recent

month of operations:

Selling price............................................... $112

Units in beginning inventory ..................... 500

Units produced........................................... 2,600

Units sold................................................... 3,000

Units in ending inventory .......................... 100

Variable costs per unit:

Direct materials ...................................... $13

Direct labour........................................... $49

Variable manufacturing overhead .......... $6

Variable selling and administrative ........ $10

Fixed costs:

Fixed manufacturing overhead ............... $80,600

Fixed selling and administrative............. $15,000

The company produces the same number of units every month, although the sales in units vary from

month to month. The company's variable costs per unit and total fixed costs have been constant from

month to month.

REQUIRED

a) What is the unit product cost for the month under variable costing?

b) What is the unit product cost for the month under absorption costing?

c) Prepare an income statement for the month using the variable costing method.

d) Prepare an income statement for the month using the absorption costing method.

e) Reconcile the variable costing and absorption costing net operating incomes for the month.

9/11

QUESTION 4 (CONT’D)

(B)

Manhattan Inc. has three operating divisions. Their results for 2019 are as follows:

Leo Gemini Taurus

Sales $5,000,000 $7,000,000 $10,000,000

Contribution margin 1,440,000 1,700,000 3,500,000

Operating income 1,000,000 1,750,000 2,520,000

Investment base 9,000,000 10,000,000 14,000,000

The company's desired rate of return is 20%.

REQUIRED

a) Compute each division's ROI.

b) Compute each division's residual income.

c) Rank each division by both ROI and residual income.

d) Which division had the best performance in 2019? Why?

Answer 1

Unit product cost for the month:
a)
Under Variable Costing
Direct materials	$               13.0
Direct labour	$               49.0
Variable manufacturing overhead	$                  6.0
Unit product cost	$               68.0
b)
Under Absorption Costing
Direct materials	$               13.0
Direct labour	$               49.0
Variable manufacturing overhead	$                  6.0
Fixed manufacturing overhead cost per unit	$               31.0
Unit product cost	$               99.0

-

Fixed manufacturing overhead cost per unit	80600/2600
Fixed manufacturing overhead	$     80,600.00
Units produced	2,600

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Income Statement
c)
Under Variable Costing
Sales (3000*$112)	$       3,36,000
Variable Expenses:
Variable Cost of Goods Sold (3000*$68)	$       2,04,000
Variable selling and administrative (3000*$10)	$           30,000
Total Variable Expense	$       2,34,000
Contribution Margin	$       1,02,000
Fixed Expenses
Fixed manufacturing overhead	$           80,600
Fixed selling and administrative	$           15,000
Total Fixed Expenses	$           95,600
Net Operating Income	$             6,400
d)
Under Absorption Costing
Sales	$       3,36,000
Cost of Goods Sold (3000*$99)	$       2,97,000
Gross Margin	$           39,000
Variable selling and administrative	$           30,000
Fixed selling and administrative	$           15,000
Net Operating Income(loss)	$           -6,000

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e)

Reconciliation:
Net Operating Income under variable costing	$            6,400
Net Operating loss under absorption coting	$          -6,000
Difference in operating Income	$         12,400
Change in inventory (500-100)	400 Unit
Change in Fixed Manufacturing Overhead cost (400*$31)	$      12,400.0

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Since you uploaded multiple questions with multiple sub parts, due to time limit can't answer both.

Please re-upload second one as new question (sorry, don't feel bad).

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Hope you Understood.
If you have any doubt please leave a comment.
Thank you.