149 G H A B D E Twyla Ltd incurs the following cost to produce and sell a single unit 5 6 7 8 9 Variable costs per unit: Direct materials Direct labour Variable MOH Variable selling & admin Fixed costs per year: Fixed MOH Fixed selling & admin $ 10 $5 $ 2 $ 4 10 11 12 13 $ 180,000 $ 300,000 15 16 The following chart outlines the inventory for the past two years. 17 18 19 20 1 2 3 Units in beginning inventory Units produced Units sold Units in ending inventory Year 1 10,000 30,000 35,000 5.000 Year 2 5.000 30,000 21,000 14,000 The Finished Goods Inventory account at the end of the year 1 shows a balance of $85,000 for the 5.000 unsold units. 3 Required: 1 a) Is the company using absorption costing or variable costing to cost units in the Finished Goods Inventory account? Variable costing A B 12 D b) Complete the following to support your answer. 11 Absorption Costing 35 36 37 38 39 -10 41 42 Direct materials Direct labour Variable MOH Fixed MOH Unit product cost Total cost for 5.000 units Variable Costing $ 300,000 $ 150.000 $ 60,000 180,000 2. Assume that the company wishes to prepare financial statements for the year to issue to its shareholders. a. Is the $85,000 figure for finished goods inventory the correct amount to use for year 1 on these statements for external reporting purposes? 45 46 47 48 49 Yes 50 b. What will be the ending inventory dollar value reported on the external financial statements for year 2? 3. Reconcile the operating income between the two costing systems for year 1 and year 2. The operating income calculated u the absorption costing method has been given for both years. 51 52 53 54 55 56 57 58 > Year 1 $ 505,000 Absorption Operating Income Change in inventory units Direction of inventory change Year 2 $ 183,000 Absorption Operating Income Change in inventory units Direction of inventory change MC Question 1 Question 2 Question 3 Question 4 Question 5 Answer Sheet SI MacBook Air Variable MOH Fixed MOH Unit product cost Total cost for 5.000 units 38 39 40 41 42 43 5 600 00 2. Assume that the company wishes to prepare financial statements for the year to issue to its shareholders. a. Is the $85,000 figure for finished goods inventory the correct amount to use for year 1 on these statements for external reporting purposes? Yes 45 46 47 -48 19 0 2 b. What will be the ending inventory dollar value reported on the external financial statements for year 27 3. Reconcile the operating income between the two costing systems for year 1 and year 2. The operating income calcul the absorption costing method has been given for both years. Year 1 $ 505,000 Year 2 $ 183,000 Absorption Operating Income Change in inventory units Direction of inventory change Absorption Operating Income Change in inventory units Direction of inventory change Variable Operating Income Variable Operating Income MC SIT Question 1 Answer Sheet Question 2 Question 3 Question 4 Question 5