Unit 5 Exercises

Question 1(Total: 40 marks)

Stark and Company would like to evaluate one of the product lines that they sell to the defense department. Every month the Stark and Company produce an identical number of units, although the sales in units differ from month to month.

Selling price

$105

Units in beginning inventory

110

Units produced

6,400

Units sold

6,100

Units in ending inventory

600

Variable costs per unit:

Direct materials

$62

Direct labour

$48

Variable manufacturing overhead

$3

Variable selling and administrative

$7

Fixed costs:

Fixed manufacturing overhead

$64,000

Fixed selling and administrative

$35,600

Submission Instructions:

1.Under variable costing, identify the unit product cost for the month.

2.What is the unit product cost for the month under absorption costing?

3.Do an income statement for the month using the contribution format and the variable costing method.

4.Do an income statement for the month using the absorption costing method.

Question 2(Total: 12 marks)

The following information pertains to Death Star Corporation for a period:

Selling price per unit

49

Standard fixed manufacturing costs per unit

24

Variable selling and administrative costs per unit

3

Fixed selling and administrative cost

14900

Beginning inventories:

Units

?

Standard fixed manufacturing cost

36,900

Standard variable manufacturing cost

18,700

Units produced

8,900

Units sold

8,600

Submission Instructions:

1.Assume the unit standard costs data for the beginning and ending inventories remained constant during the period. What was the total standard cost of the ending inventory under absorption costing?

Question 3

(Total: 30 marks)

DC-Marvel would like to evaluate one of the product lines that they sell to defense department. Every month the company produces an identical number of units, although the sales in units differ from month to month.

Product B

Selling price

$109

Units in beginning inventory

360

Units produced

6,900

Units sold

7,200

Variable costs per unit:

Direct materials

$29

Direct labour

$31

Variable manufacturing overhead

$2

Variable selling and administrative

$7

Fixed costs:

Fixed manufacturing overhead

$53,500

Fixed selling and administrative

$145,000

Submission Instructions:

1.Compute the Contribution Margin.

2.Compute the Operating Income under Variable Costing.

3.Do a reconciliation from your Operating Income under Variable Costing to Operating Income under Absorption Costing. Show the differences between each method.

Question 4(Total: 18 marks)

Stark and Company's has the following cost data:

Systems development

$29,000

Final product testing and inspection

$12,000

Quality data gathering, analysis, and reporting

$ 9,000

Net cost of scrap

$58,000

Customer returns arising from quality problems

$56,000

Amortization of testing equipment

$53,000

Rework labour and overhead

$16,000

Testing and inspection of incoming materials

$38,000

Product recalls

$33,000

Submission Instructions:

1.Determine the total prevention costs?

2.Determine total appraisal costs?

3.Determine the total internal failure costs?