managerial accounting

4 questions about

Variable and Absorption Costing Unit Product Costs

difficulty: medium

Shastri Bicycle of Bombay, India, produces an inexpensive, yet rugged, bicycle for use on the city's crowded streets that it sells for 500 rupees. (Indian currency is denominated in rupees, denoted by R.) Selected data for the company's operations last year follow: Units in beginning inventory Units produced Units sold Units in ending inventory Variable costs per unit: Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative Fixed costs: Fixed manufacturing overhead Fixed selling and administrative 0 10,000 8,000 2,000 R R R R 120 140 50 20 R600,000 R400,000 Required: 1. Assume that the company uses absorption costing. Compute the unit product cost for one bicycle. Unit product cost R 2. Assume that the company uses variable costing. Compute the unit product cost for one bicycle. Unit product cost R Hints Hint #1 References Worksheet Difficulty: Medium Exercise 6-1 Variable and Absorption Costing Unit Product Costs [LO1] Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method. Amcor, Inc., incurs the following costs to produce and sell a single product. Variable costs per unit: Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative expenses Fixed costs per year: Fixed manufacturing overhead Fixed selling and administrative expenses $ $ $ $ 10 5 2 4 $ 90,000 $ 300,000 During the last year, 30,000 units were produced and 25,000 units were sold. The Finished Goods inventory account at the end of the year shows a balance of $85,000 for the 5,000 unsold units. Required: 1. Determine whether the company is using absorption costing or variable costing to cost units in the Finished Goods inventory account. a. Calculate the ending balance in the Finished Goods inventory account under variable costing and absorption costing. Ending balance in Finished Good inventory account under variable costing Ending balance in Finished Goods inventory account under absorption costing $ $ b. Which costing method is the company using to cost units in the Finished Goods inventory account? Absorption costing Variable costing 2. Assume that the company wishes to prepare financial statements for the year to issue to its stockholders. a. Is the $85,000 figure for Finished Goods inventory the correct amount to use on these statements for external reporting purposes? Yes, because variable costing is generally accepted for external reporting. No, because variable costing is not generally accepted for external reporting. Yes, because absorption costing is generally accepted for external reporting. No, because absorption costing is not generally accepted for external reporting. b. At what dollar amount should the 5,000 units be carried in inventory for external reporting purposes? Finished Goods inventory balance for external reporting purposes Hints Hint #1 $ References Worksheet Difficulty: Medium Exercise 6-6 Inferring Costing Method; Unit Product Cost [LO1] Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method. CompuDesk, Inc., makes an oak desk specially designed for personal computers. The desk sells for $200. Data for last year's operations follow: Units in beginning inventory Units produced Units sold Units in ending inventory Variable costs per unit: Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative 0 10,000 9,000 1,000 $ 60 30 10 20 Total variable cost per unit $ 120 Fixed costs: Fixed manufacturing overhead Fixed selling and administrative expenses $ 300,000 450,000 Total fixed costs $ 750,000 Required: 1. Assume that the company uses variable costing. Compute the unit product cost for one computer desk. Unit product cost $ 2. Assume that the company uses variable costing. Prepare a contribution format income statement for the year. (Input all amounts as positive values except losses which should be indicated by a minus sign.) (Click to select) Variable expenses: (Click to select) (Click to select) Variable Costing Income Statement $ $ (Click to select) Fixed expenses: (Click to select) (Click to select) (Click to select) $ 3. What is the company's break-even point in terms of units sold? Break-even point units References Worksheet Difficulty: Medium Exercise 6-9 Variable Costing Unit Product Cost and Income Statement; Break-Even [LO1, LO2] Learning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method. Learning Objective: 06-02 Prepare income statements using both variable and absorption costing. Required: 1. By how much would the company's net operating income increase if Dallas increased its sales by $75,000 per year? Assume no change in cost behavior patterns. Increase in Net operating income rev: 03_13_2013_QC_27117 $ References Worksheet Difficulty: Medium Exercise 6-14 Part 1 Learning Objective: 06-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it to make decisions