Question

Summarized data for Walrus Co. for its first year of operations are:

Sales (110,000 units)	$5,500,000
Production Costs (132,000 units):
Direct Material	1,848,000
Direct Labor	1,584,000
Manufacturing Overhead:
Variable	924,000
Fixed	330,000
Selling and Administrative Expenses:
Variable	275,000
Fixed	473,000

A. Prepare an income statement under absorption costing.

Walrus Co.
Absorption Costing Income Statement
Sales		$
Cost of Goods Sold:
Direct Material	$
Direct Labor
Variable Overhead
Fixed Overhead
	$
Ending Inventory
Total Cost of Goods Sold
Gross Profit		$
Selling and Administrative Expenses
Net Income		$

B. Prepare an income statement under variable costing.

Walrus Co.
Variable Costing Income Statement
Sales		$
Variable Cost of Goods Sold:
Direct Material	$
Direct Labor
Variable Overhead
	$
Ending Inventory
Total Variable Cost of Goods Sold
Variable Selling Expenses
Contribution Margin		$
Fixed Expenses:
Fixed Manufacturing Overhead	$
Fixed Administrative Expenses
Net Income		$

Answer 1

Answer A.

Cost per unit = Total manufacturing cost / Units produced
Cost per unit = $4,686,000 / 132,000
Cost per unit = $35.50

Ending inventory = Cost per unit * Units in ending inventory
Ending inventory = $35.50 * 22,000
Ending inventory = $781,000

Selling and administrative expenses = Variable selling expenses + Fixed administrative expenses
Selling and administrative expenses = $275,000 + $473,000
Selling and administrative expenses = $748,000

Answer B.

Variable cost per unit = Variable manufacturing cost / Units produced
Variable cost per unit = $4,356,000 / 132,000
Variable cost per unit = $33.00

Ending inventory = Variable cost per unit * Units in ending inventory
Ending inventory = $33.00 * 22,000
Ending inventory = $726,000