Ida Company produces a handcrafted musical instrument called a gamelan that is similar to a xylophone. The gamelans are sold for $759. Selected data for the companys operations last year follow:

Units in beginning inventory		0
Units produced		17,000
Units sold		15,000
Units in ending inventory		2,000
Variable costs per unit:
Direct materials	$	220
Direct labor	$	320
Variable manufacturing overhead	$	63
Variable selling and administrative	$	24
Fixed costs:
Fixed manufacturing overhead	$	790,000
Fixed selling and administrative	$	470,000

Required:

1. Assume that the company uses absorption costing. Compute the unit product cost for one gamelan. (Round your intermediate calculations and final answer to the nearest whole dollar amount.)

2. Assume that the company uses variable costing. Compute the unit product cost for one gamelan.

Ida Company produces a handcrafted musical instrument called a gamelan that is similar to a xylophone. The gamelans are sold for $960. Selected data for the companys operations last year follow:

Units in beginning inventory		0
Units produced		230
Units sold		200
Units in ending inventory		30
Variable costs per unit:
Direct materials	$	110
Direct labor	$	320
Variable manufacturing overhead	$	30
Variable selling and administrative	$	10
Fixed costs:
Fixed manufacturing overhead	$	69,000
Fixed selling and administrative	$	27,000

The absorption costing income statement prepared by the companys accountant for last year appears below:

Sales	$	192,000
Cost of goods sold		152,000
Gross margin		40,000
Selling and administrative expense		29,000
Net operating income	$	11,000

Required:

1. Under absorption costing, how much fixed manufacturing overhead cost is included in the company's inventory at the end of last year?

2. Prepare an income statement for last year using variable costing.

During Heaton Companys first two years of operations, it reported absorption costing net operating income as follows:

	Year 1		Year 2
Sales (@ $63 per unit)	$	1,197,000		$	1,827,000
Cost of goods sold (@ $41 per unit)		779,000			1,189,000
Gross margin		418,000			638,000
Selling and administrative expenses*		305,000			335,000
Net operating income	$	113,000		$	303,000

* $3 per unit variable; $248,000 fixed each year.

The companys $41 unit product cost is computed as follows:

Direct materials	$	7
Direct labor		13
Variable manufacturing overhead		2
Fixed manufacturing overhead ($456,000 24,000 units)		19
Absorption costing unit product cost	$	41

Production and cost data for the first two years of operations are:

	Year 1	Year 2
Units produced	24,000	24,000
Units sold	19,000	29,000

Required:

1. Using variable costing, what is the unit product cost for both years?

2. What is the variable costing net operating income in Year 1 and in Year 2?

3. Reconcile the absorption costing and the variable costing net operating income figures for each year.

High Country, Inc., produces and sells many recreational products. The company has just opened a new plant to produce a folding camp cot that will be marketed throughout the United States. The following cost and revenue data relate to May, the first month of the plants operation:

Beginning inventory		0
Units produced		36,000
Units sold		31,000
Selling price per unit	$	80
Selling and administrative expenses:
Variable per unit	$	3
Fixed (per month)	$	564,000
Manufacturing costs:
Direct materials cost per unit	$	18
Direct labor cost per unit	$	7
Variable manufacturing overhead cost per unit	$	4
Fixed manufacturing overhead cost (per month)	$	684,000

Management is anxious to assess the profitability of the new camp cot during the month of May.

Required:

1. Assume that the company uses absorption costing.

a. Calculate the unit product cost.

b. Prepare an income statement for May.

2. Assume that the company uses variable costing.

a. Calculate the unit product cost.

b. Prepare a contribution format income statement for May.

Tami Tyler opened Tamis Creations, Inc., a small manufacturing company, at the beginning of the year. Getting the company through its first quarter of operations placed a considerable strain on Ms. Tylers personal finances. The following income statement for the first quarter was prepared by a friend who has just completed a course in managerial accounting at State University.

Tamis Creations, Inc. Income Statement For the Quarter Ended March 31
Sales (28,100 units)				$	1,124,000
Variable expenses:
Variable cost of goods sold	$	474,890
Variable selling and administrative		168,600			643,490
Contribution margin					480,510
Fixed expenses:
Fixed manufacturing overhead		279,900
Fixed selling and administrative		214,110			494,010
Net operating loss				$	( 13,500)

Ms. Tyler is discouraged over the loss shown for the quarter, particularly because she had planned to use the statement as support for a bank loan. Another friend, a CPA, insists that the company should be using absorption costing rather than variable costing and argues that if absorption costing had been used the company probably would have reported at least some profit for the quarter.

At this point, Ms. Tyler is manufacturing only one producta swimsuit. Production and cost data relating to the swimsuit for the first quarter follow:

Units produced	31,100
Units sold	28,100
Variable costs per unit:
Direct materials		$	7.40
Direct labor		$	7.60
Variable manufacturing overhead		$	1.90
Variable selling and administrative		$	6.00

Required:

1. Complete the following:

a. Compute the unit product cost under absorption costing.

b. What is the companys absorption costing net operating income (loss) for the quarter?

c. Reconcile the variable and absorption costing net operating income (loss) figures.

3. During the second quarter of operations, the company again produced 31,100 units but sold 34,100 units. (Assume no change in total fixed costs.)

a. What is the companys variable costing net operating income (loss) for the second quarter?

b. What is the companys absorption costing net operating income (loss) for the second quarter?

c. Reconcile the variable costing and absorption costing net operating incomes for the second quarter.

Wingate Company, a wholesale distributor of electronic equipment, has been experiencing losses for some time, as shown by its most recent monthly contribution format income statement:

Sales	$ 1,571,000
Variable expenses	657,300
Contribution margin	913,700
Fixed expenses	1,005,000
Net operating income (loss)	$ (91,300)

In an effort to resolve the problem, the company would like to prepare an income statement segmented by division. Accordingly, the Accounting Department has developed the following information:

	Division
East	Central	West
Sales	$ 431,000	$ 640,000	$ 500,000
Variable expenses as a percentage of sales	50%	37%	41%
Traceable fixed expenses	$ 267,000	$ 330,000	$ 207,000

Required:

1. Prepare a contribution format income statement segmented by divisions.

2-a. The Marketing Department has proposed increasing the West Division's monthly advertising by $20,000 based on the belief that it would increase that division's sales by 14%. Assuming these estimates are accurate, how much would the company's net operating income increase (decrease) if the proposal is implemented?

2-b. Would you recommend the increased advertising?