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Variable Costing and Absorption Costing – Questions 1 – 8. Production Costs                              

Variable Costing and Absorption Costing – Questions 1 – 8.

Production Costs                                                                               Nonproduction Costs

Direct materials cost   $4 per unit                                                   Variable S&A expenses          $2 per unit

Direct labor cost            $8 per unit                                                   Fixed S&A expenses   $200,000 per year

Variable overhead cost $3 per unit

Fixed overhead cost        $600,000 per year

Sales price/unit   $40

                                                      Units Produced          Units Sold                   Units in Ending Inventory

2015                                                    60,000                      60,000                                 0

2016                                                    60,000                      45,000                         15,000

2017                                                    60,000                      75,000                                   0

UNITS PRODUCED EXCEED UNITS SOLD

           

ICEAGE COMPANY

Income Statement (Absorption Costing)

   For Year Ended December 31, 2016

Sales

Cost of goods sold

Gross profit

S&A expenses

Net income

            ICEAGE COMPANY

Income Statement (Variable Costing)

For Year Ended December 31, 2016

Sales

Variable expenses

   Variable production costs

   Variable S&A expenses

Contribution margin

   Fixed expenses

   Fixed overhead

   Fixed S&A expenses

Net income

Variable Costing and Absorption Costing

UNITS PRODUCED ARE LESS THAN UNITS SOLD

              ICEAGE COMPANY

Income Statement (Absorption Costing)

   For Year Ended December 31, 2017

Sales

Cost of goods sold

Gross profit

S&A expenses

Net income

          

ICEAGE COMPANY

Income Statement (Variable Costing)

For Year Ended December 31, 2017

Sales

Variable expenses

   Variable production costs

   Variable S&A expenses

Contribution margin

   Fixed expenses

   Fixed overhead

   Fixed S&A expenses

Net income

What is gross profit if 45,000 units are sold?

What is net income under absorption costing if 45,000 units are sold?

What is contribution margin if 45,000 units are sold?

What is net income under variable costing if 45,000 units are sold?

What is gross profit if 75,000 units are sold?

A. $1,123,000

What is net income under absorption costing if 75,000 units are sold?

What is contribution margin if 75,000 units are sold?

What is net income under variable costing if 75,000 units are sold?

Solutions

Expert Solution

ICEAGE COMPANY

Income Statement (Absorption Costing)

   For Year Ended December 31, 2016

Sales          (45000*40)                                               1,800,000        

Cost of goods sold (45000*25)                                    1,125,000

Gross profit                                                                     675,000

S&A expenses 200,000+45000*2                                 290,000

Net income                                                                    385,000

            ICEAGE COMPANY

Income Statement (Variable Costing)

For Year Ended December 31, 2016

Sales (45000*40)                                               1,800 000        

Variable expenses

   Variable production costs (45000*15)             

   Variable S&A expenses (45000*2)                  765,000

Contribution margin                                             1,035,000

   Fixed expenses

   Fixed overhead                      600000

   Fixed S&A expenses              200000                  800,000

Net income                                                               235,000                                                   

Contribution Margin

Sales                                                                         1,800,000  

Variable expenses

   Variable production costs (45000*15)             

   Variable S&A expenses (45000*2)                  765,000

Contribution margin                                             1,035,000

UNITS PRODUCED ARE LESS THAN UNITS SOLD

              ICEAGE COMPANY

Income Statement (Absorption Costing)

   For Year Ended December 31, 2017

Sales (75000*40)                                                  3,000,000

Cost of goods sold (75000*25)                              1,875,000

Gross profit                                                            1,125,000

S&A expenses (200000 +75000*2)                            350,000                                                                                                  

Net income                                                                 775,000

     

  

ICEAGE COMPANY

Income Statement (Variable Costing)

For Year Ended December 31, 2017

Sales 75000*40)                                                   3,000,000

Variable expenses

   Variable production costs 75000*15= 1125000

   Variable S&A expenses 75000*2    =    150,000 1,275,000

Contribution margin                                                 1,725,000

   Fixed expenses                                                             

   Fixed overhead                                                       600,000

   Fixed S&A expenses                                              200,000

Net income                                                                 925,000

Contribution Margin

Sales 75000*40)                                                  3,000,000

Variable expenses

   Variable production costs 75000*15 1125000

   Variable S&A expenses 75000*2         150,000 1,275,000

Contribution margin                                               1,725,000

What is gross profit if 45,000 units are sold?

675,000

What is net income under absorption costing if 45,000 units are sold?

385,000

What is contribution margin if 45,000 units are sold?

1,035,000

What is net income under variable costing if 45,000 units are sold?

235,000   

What is gross profit if 75,000 units are sold?

A. $1,125,000

What is net income under absorption costing if 75,000 units are sold?

775,000

What is contribution margin if 75,000 units are sold?

1,725,000

What is net income under variable costing if 75,000 units are sold?

925,000


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