Question

1)     Farron Corporation, which has only one product, has provided the following data concerning its most recent month of operations:

Selling price	$168
Units in beginning inventory	0
Units produced	9,650
Units sold	9,250
Units in ending inventory	400
Variable costs per unit:
Direct materials	$32
Direct labor	$74
Variable manufacturing overhead	$20
Variable selling and administrative	$24
Fixed costs:
Fixed manufacturing overhead	$144,750
Fixed selling and administrative	$10,200

What is the net operating income for the month under variable costing?

$11,550

$(38,850)

$17,550

$6,000

2)     Farron Corporation, which has only one product, has provided the following data concerning its most recent month of operations:

Selling price	$160
Units in beginning inventory	0
Units produced	9,550
Units sold	9,150
Units in ending inventory	400
Variable costs per unit:
Direct materials	$30
Direct labor	$72
Variable manufacturing overhead	$18
Variable selling and administrative	$22
Fixed costs:
Fixed manufacturing overhead	$143,250
Fixed selling and administrative	$10,000

What is the net operating income for the month under absorption costing?

$36,550

$11,450

$17,450

$6,000

3)     Aaker Corporation, which has only one product, has provided the following data concerning its most recent month of operations:

Selling price	$171
Units in beginning inventory	0
Units produced	7,200
Units sold	6,900
Units in ending inventory	300
Variable costs per unit:
Direct materials	$30
Direct labor	$60
Variable manufacturing overhead	$24
Variable selling and administrative	$24
Fixed costs:
Fixed manufacturing overhead	$194,400
Fixed selling and administrative	$29,400

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

$138 per units

$165 per units

$141 per units

$114 per units

4)     Khanam Corporation, which has only one product, has provided the following data concerning its most recent month of operations:

Selling price	$167
Units in beginning inventory	0
Units produced	7,150
Units sold	6,850
Units in ending inventory	300
Variable costs per unit:
Direct materials	$29
Direct labor	$59
Variable manufacturing overhead	$23
Variable selling and administrative	$23
Fixed costs:
Fixed manufacturing overhead	$193,050
Fixed selling and administrative	$29,100

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.

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

$138 per unit

$111 per unit

$134 per unit

$161 per unit

Answer 1

Ans 1.

The net operating income for the month under variable costing for Farron Corporation is calculated below:

i) Direct Material	$32
ii) Direct labor	$74
iii) Variable manufacturing overhead	$20
Variable costing unit product cost (i + ii + iii)	$126
A) Sales ($168 per unit * 9250 units sold)		$1,554,000
B) Less variable expenses:
Variable cost of goods sold
($126 per unit * 9250 units sold)	$1,165,500
Variable selling and administrative
($24 per unit × 9250 units)	$222,000	$1,387,500
C) Contribution margin (A – B)		$166,500
D) Less : fixed expenses
Fixed manufacturing overhead	$144,750
Fixed selling and administrative	$10,200	$154,950
E) Net operating Income ( C-D)		$11,550

Ans 2.

The net operating income for the month under absorption costing for Farron Corporation is calculated below:

a) Direct Material	$30
b) Direct labor	$72
c) Variable manufacturing overhead	$18
d) Fixed manufacturing overhead cost ($143,250 / 9550)	$15
absorbption costing unit produced cost ( a+ b+ c+ d)	$135
sales ($160 * 9150 units)	$1,464,000
cost of goods sold ( $135 *9150 units)	$1,235,250
gross margin (sales - cogs)	$228,750
Selling and administrative expenses ($22 per unit × 9,150 units + $10,000)	211300
net operating income (gross margin - selling and admin expenses)	$17,450

Ans 3.

the unit product cost for the month under variable costing for Aaker Corporation is calculated below:

a) Direct material $30

b) direct labor $60

c) variable manufacturing overhead $24

variable costing unit product cost (a + b+ c) $114 per unit

Ans 4. The unit product cost for the month under absorption costing for Khanam Corporation is calculated below:

a) Direct material $29

b) direct labor $59

c) variable manufacturing overhead $23

d) fixed manufacturing overhead cost (193050 / 7150 units produced ) $27

Absorbption costing unit product cost ( a + b + c+ d) = $138 per unit