Question

During 2021, its first year of operations, XYZ Company produced 25,000
units and sold 19,000 units. During 2022, XYZ Company produced 30,000
units and sold 32,000 units. The following information was taken from
XYZ's accounting records for 2021 and 2022:

                                               2021            2022
Direct materials cost per unit ............    $18             $17
Direct labor cost per unit ................    $16             $21
Variable overhead cost per unit ...........    $7              $9
Variable selling & admin cost per unit ....    $4              $6
Fixed overhead (total cost) ...............    $105,000        $144,000
Fixed selling & admin (total cost) ........    $88,000         $96,000

Assume the selling price of XYZ Company's product was $64 per unit for
both years.

Calculate XYZ Company's 2022 net income using variable costing.
Assume XYZ Company employs a FIFO inventory cost flow assumption.

Answer 1

	Working Notes: 1
	CALCULATION OF CLOSING STOCK
		2021	2022
		(Units)	(Units)
	Opening Stock =	0	6000
	Add: Production =	25000	30000
	Less: Sales	19000	32000
	Closing Stock	6000	4000
	Working Notes: 2
	Caclulation of Unit Cost of Production by using Variable Costing
		2021	2022
	Particulars	Amount
		Cost per Unit	Cost per Unit
	Variable Cost Per Unit	$                18.00	$                17.00
	Direct Labour	$                16.00	$                21.00
	Variable Manufacturing Cost	$                  7.00	$                  9.00
	Total Manufacturing Variable Cost	$                41.00	$                47.00
	Working Notes: 3
	CALCULATION OF VALUE OF OPENING STOCK AND CLOSING STOCK
	Opening Stock Value = (6000 units * $ 41.00)	$          2,46,000
	Closing Stock Value = (4,000 units * $ 47.00)	$          1,88,000
	SOLUTION :
	VARIABLE COSTING INCOME STATEMENT
		Per unit Cost	Amount
	Sales (32,000 Units X $ 64)		$       20,48,000
	Less: Variable Cost of Goods Sold
	Opening Inventory	$          2,46,000
	Add: Vriable Cost of Goods Manufactured(30,000 Units *$ 47)	$       14,10,000
	Less: Closing inventory	$          1,88,000
	Total Variable Cost of Goods Sold		$       14,68,000
	Manufacturing Margin		$          5,80,000
	Less: Variable Sellign and administration expenses (32,000 X $ 6)		$          1,92,000
	Contribution margin		$          3,88,000
	Fixed Cost
	Fixed Manufacturing Cost	$          1,44,000
	Fixed Selling and adminsitration expenses	$             96,000
	Total Fixed Cost		$          2,40,000
	Net Income		$          1,48,000