Question

MicroDecor produces stylish microwave ovens. Each unit sells for $620. During 20X7, the company produced 23,000 units, and sold 21,000 units. Beginning inventory contained a total of 3,200 units. Production and SG&A costs have been stable for many years. Assume the per unit costs in beginning and ending inventory are identical. Per unit cost information follows:

Direct materials cost	$160
Direct labor cost	110
Variable factory overhead	85
Variable SG&A	60

Annual fixed manufacturing overhead is $245,000. Annual fixed SG&A totals $1,500,000.

(a) Determine the number of units in ending inventory, and calculate the total carrying cost using

both variable and absorption costing.

(b) Calculate 20X7 net income using variable costing.

(c) Calculate 20X7 net income using absorption costing.

Answer 1

WORKING NOTES : 1
	beginning Inventory	3,200	Units
	Unit Produced =	23,000	Units
	Unit Sold =	21,000	Units
	Closing Stock	5,200	Units
	Selling Price Per unit	$                       620.00	Per Units
	Sales Value	$              1,30,20,000
	Fixed Overhead recovery Rate =
	Fixed Manufacturing Overhead	$                    2,45,000
	Divide by	"/" By
	Number of units Produced	$                       23,000
	Fixed Overhead recovery Rate =	$                          10.65	Per Units
WORKING NOTES : 2
	CALCUALTION OF cost of production units by using absorption and variable Costing
	Particulars	Absorption Costing Amount	Variable Costing Amount
	Direct Material Per unit	$                       160.00	$                       160.00
	Direct Labour Per Unit	$                       110.00	$                       110.00
	Vairable Manufacturing Overhead	$                          85.00	$                          85.00
	Fixed Manufacturing Overhead	$                          10.65	$                                 -
	Cost of Production per unit	$                       365.65	$                       355.00
SOLUTION = 1
	ABOSRPTION COSTING INCOME STATEMENTS	Absorption Costing		Calcultion
	Particulars	Amount		Unit	Rate	Amount
	Sales	$              1,30,20,000
	Cost of Goods Sold
	Beginning inventory	$                 11,70,087		3200	$   365.65	$ 11,70,087
	Cost of Goods Manufactured	$                 84,10,000		23000	$   365.65	$ 84,10,000
	Less: Ending Inventory	$                 19,01,391		5,200	$   365.65	$ 19,01,391
	Cost of Goods Sold	$                 76,78,696
	Gross Profit	$                 53,41,304
	Less : Selling Expenses
	Variable	$                 12,60,000		21,000	$     60.00	$ 12,60,000
	Fixed	$                 15,00,000
	Net Income	$                 25,81,304
SOLUTION = 2
				Calcultion
	VARIABLE COSTING INCOME STATEMENTS	Variable Costing		Unit	Rate	Amount
	Particulars	Amount
	Sales	$              1,30,20,000
	Cost of Goods Sold
	Beginning inventory	$                 11,36,000		3200	$   355.00	$ 11,36,000
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