My First Violin produces student-grade violins for beginning violin students. The company produced 2,700 violins in its first month of operations. At month-end, 700 finished violins remained unsold. There was no inventory in work in process. Violins were sold for $112.50 each. Total costs from the month are as follows: (Click on the icon to view the data.) ) The company prepares traditional (absorption costing) income statements for its bankers. My First Violin would also like to prepare contribution margin income statements for management use Read the requirements BRID Compute the following amounts that would be shown on these income statements: Requirement 1. Gross Profit Identify the formula, then compute the gross profit. Sales Cost of goods sold Gross profit 225000 Requirement 2. Contribution Margin Identify the formula, then compute the contribution margin - X Data Table = Contribution margin 119,300 Requirement 3. Total expenses shown below the gross profit line 65,000 S 29,000 Direct materials used. . $ Direct labor $ Variable manufacturing overhead Fixed manufacturing overhead $ Variable selling and administrative expenses .. $ Fixed selling and administrative expenses $ 84,800 + 10,000 = Total expenses below the gross profit line 11.900 Requirement 4. Total expenses shown below the contribution margin line + Print Print Done = Total expenses below the contribution margin line Requirement 5. Dollar value of ending inventory under absorption costing The dollar value of ending inventory under absorption costing is Requirement 6. Dollar value of ending inventory under variable costing The dollar value of ending inventory under variable costing is Requirement 7. Which income statement will have a higher operating income? By how much? Explain. The income statement will have a higher operating income by Under absorption costing Under variable costing, these costs are Noble Industries has one product. Information about the production and sales of that product for the past year follow. (Click the icon to view the data.) The company had no beginning inventory Read the requirements Requirement 1. Prepare two income statements for the year, one using absorption costing and one using variable costing Begin by preparing the income statement for the year using absorption costing Noble Industries Income Statement(Absorption Costing) For the Year Ended Sales revenue 900000 Less: Cost of goods sold Gross profit Less: Operating expenses X Data Table Gross profit Now prepare the income statement for the year using variable costing. Noble Industries Contribution Margin Income Statement (Variable Costing) For the Year Ended Selling price per unit S 50.00 Direct material per unit S 19.00 Direct labor per unit S 8.00 Total annual manufacturing overhead .... $ 253.000 Fixed portion of annual manufacturing overhead S 181,000 Variable operating expenses per unit sold S 5.00 Fixed operating expenses per year in total S 46,000 Units manufactured 23,000 Units sold 18,000 Less: Less: Print Print Done 1d. Use the statements you prepared to answer the following questions: 1a. What is the product cost per unit using absorption costing? 1b. What is the product cost per unit using variable costing? 1c What is the ending inventory balance using absorption costing? What is the ending inventory balance using variable costing? 1e. What is cost of goods sold using absorption costing? 1f What is cost of goods sold using variable costing? 1g. What is operating income using absorption costing? 1h. What is operating income using variable costing? Requirement 2. What is the underlying reason for the difference in operating income between the two costing methods? costing generates a higher operating income. This is because under absorption costing whereas variable costing
