Question

Please solve the following question in detiels !

A company has $25 per unit selling price, $7.00 per unit in variable production cost and $2.00 per unit in variable selling and administrative cost. The annual fixed production cost is $400,000. The annual fixed selling and administrative cost is $50,000.

Complete the table below for each year. Assume a FIFO flow.

  

			2016 2017 2018 2019 Units Produced 120,000 150,000 100,000 100,000 Units Sold 110,000 120,000 140,000 100,000 Cost per unit under variable costing Cost per unit under absorption costing Operating income under variable costing Operating income under absorption costing Ending inventory using variable costing ( $ ) Ending inventory using absorption costing ( $ )

Answer 1

Answer:-

Working Note:

				Year
	Particulars		2016	2017	2018	2019
	Units Produced		120000	150000	100000	100000
	Units Sold		110000	120000	140000	100000
	Selling price per unit	$25
a)	Variable Production cost per unit	$7
b)	Variable S&A OH	$2
	Annual Fixed Production Cost	$400,000
	Annual Fixed S&A OH	$50,000
	Variable Cost per unit(a+b)	9

	Variable Costing Income Statement
		Amount($)
	Particulars	2016	2017	2018	2019
	Sales	$2,750,000	$3,000,000	$3,500,000	$2,500,000
Less:	Variable Cost per unit	$990,000	$1,080,000	1260000	900000
	Contribution	$1,760,000	$1,920,000	$2,240,000	$1,600,000
Less:	Fixed Production Cost	$400,000	$400,000	$400,000	$400,000
	Fixed S&A OH	$50,000	$50,000	$50,000	$50,000
	Operating Income under Variable Costing	$1,310,000	$1,470,000	$1,790,000	$1,150,000
	Cost per unit under Variable Costing
		Amount($)
	Particulars	2016	2017	2018	2019
	Variable Cost	990000	1080000	1260000	900000
	Fixed Cost	$450,000	$450,000	$450,000	$450,000
	Total Cost	$1,440,000	$1,530,000	$1,710,000	$1,350,000
	Units Produced	120000	150000	100000	100000
	Cost per unit	$12.00	$10.20	$17.10	$13.50
	Valuation of Closing Inventory under Variable Cost
		Amount($)
	Particulars	2016	2017	2018	2019
	Opening Stock	0	10000	40000	0
	Units Produced	120000	150000	100000	100000
	Units Sold	110000	120000	140000	100000
	Closing Stock	10000	40000	0	0
	Cost per unit	$12.00	$3.75	$17.10	$13.50
	Closing Inventory($)	$120,000.00	$150,000.00	$0.00	$0.00

	Absorption Costing Income Statement
		Amount($)
	Particulars	2016	2017	2018	2019
	Sales	2750000	3000000	3500000	2500000
Less:	Cost of goods sold
	Variable Production cost per unit	$770,000	$840,000	$980,000	$700,000
	Annual Fixed Production Cost	$400,000	$400,000	$400,000	$400,000
	Gross Profit	$1,580,000	$1,760,000	$2,120,000	$1,400,000
	Less: Variable S&A OH	$220,000	240000	280000	200000
	Fixed S&A OH	$50,000	$50,000	$50,000	$50,000
	Operating Income under Absorption Costing	$1,310,000	$1,470,000	$1,790,000	$1,150,000
	Cost per unit under Absorption Costing
		Amount($)
	Particulars	2016	2017	2018	2019
	Variable Production cost per unit	$7	$7	$7	$7
	Variable S&A OH	$2	$2	$2	$2
	Fixed Production Cost($400000)	$3.33	$2.67	$4	$4
	Fixed S&A OH	$0.45	$0.42	$0.36	$0.50
	Cost per unit	$12.79	$12.08	$13.36	$13.50
	Valuation of Closing Inventory under Variable Cost
		Amount($)
	Particulars	2016	2017	2018	2019
	Opening Stock	0	10000	40000	0
	Units Produced	120000	150000	100000	100000
	Units Sold	110000	120000	140000	100000
	Closing Stock	10000	40000	0	0
	Cost per unit	12.79	12.08	13.36	13.50
	Closing Inventory($)	127878.788	483333.33	0	0