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Absorption and Variable Costing Comparisons Red Arrow Blueberries manufactures blueberry jam. Because of bad weather, its...

Absorption and Variable Costing Comparisons
Red Arrow Blueberries manufactures blueberry jam. Because of bad weather, its blueberry crop was small. The following data have been gathered for the summer quarter of last year:

Beginning inventory (cases) 0
Cases produced 8,000
Cases sold 7,000
Sales price per case $ 115
Direct materials per case $ 25
Direct labor per case $ 40
Variable manufacturing overhead per case $ 10
Total fixed manufacturing overhead $ 192,000
Variable selling and administrative cost per case $ 2
Fixed selling and administrative cost $ 38,000
  • Functional Income Statement
  • Contribution Income Statement
  • Ending Inventory Analysis


(a) Prepare a functional income statement for the quarter using absorption costing. (Round answers to the nearest dollar. Do not use negative signs with your answers, EXCEPT if you calculate a net loss.)

RED ARROW BLUEBERRIES
Functional (Absorption Costing) Income Statement
For the Summer Quarter (Last Year)
Sales Answer
Cost of goods sold:
Variable costs Answer
Fixed costs Answer
Goods available Answer
Ending inventory Answer Answer
Gross profit Answer
Operating expenses:
Variable selling and administrative Answer
Fixed selling and administrative Answer Answer
Net income (loss)

Answer
  • Ending Inventory Analysis


(c) What is the value of ending inventory under absorption costing? (Round answer to the nearest whole number.)
$Answer

(d) What is the value of ending inventory under variable costing?
$Answer

(e) The difference in the value of ending inventory in parts (c) and (d) is explained by the following difference between absorption and variable costing:

Variable costing assigns only variable manufacturing costs to products while absorption costing assigns both variable and fixed manufacturing costs to products.

Variable costing treats all manufacturing costs as variable costs while absorption costing treats only variable manufacturing costs as variable costs.

Absorption costing treats fixed costs as period costs while variable costing treats fixed costs as product costs.

Absorption costing treats all manufacturing costs as period costs while variable costing treats only variable manufacturing costs as period costs.

  • Ending Inventory Analysis


(b) Prepare a contribution income statement for the quarter using variable costing. (Do not use negative signs with your answers, EXCEPT if you calculate a net loss.)

RED ARROW BLUEBERRIES
Contribution (Variable Costing) Income Statement
For the Summer Quarter (Last Year)
Sales Answer
Variable expenses:
Manufacturing Answer
Selling and administrative Answer Answer
Contribution margin Answer
Fixed expenses:
Manufacturing overhead Answer
Selling and administrative Answer Answer
Net income (loss) Answer

Solutions

Expert Solution

a Under Absorption costing
Note 1 Inventory Valuation
Revenue 805000 Direct Material Cost 25 200000
Dirrect labour cost 40 320000
Cost of goods Sold -525000 Direct Manufacturing 10 80000
Variable Manufacturing cost 600000 Fixed manufacturing cost 192000
Fixed manufacturing cost 192000 TOTAL cogs 792000
Goods Avaialble 792000
Ending inventory 99000 693000 Units produced 8000
Gross profit 112000 Cost per unit 99 24
Variable selling and admin expense 14000 2
Fixed Selling & Admin Expense 38000 Cost of goods sold 115
units sold 99x 7000
operating income 60000 Cost of goods sold 693000
c Closing inventory value under absorption costing
Closing units 1000
99 Refer to Note 1
Inventory 99000
d Closing inventory value under Variable Costing
Closing units 1000
75 Refer to Note 2
E Reconciliation Between value of inventory of absorption costing and variable costing
Reconcialiation
operating income under absorption 60000
Fixed over head dieffered 24000 1000
operating income under Variable 36000
Fixed manufacturing 192000
8000
24
Closing inventory unit 1000
24000
Production 8000
Sales 7000 115 805000
b Under Variable Costing
Note2 Cost of goods sold calculation
Revenue 805000 Direct Material Cost 25 200000
Dirrect labour cost 40 320000
Varaible cost of goods sold 525000 Direct Manufacturing 10 80000
ekkarill92 answered 1 year ago
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