Variable Costing and Absorption Costing - Questions 1 - 8.

Production CostsNonproduction Costs

Direct materials cost$4 per unitVariable S&A expenses$2 per unit

Direct labor cost$8 per unitFixed S&A expenses$200,000 per year

Variable overhead cost$3 per unit

Fixed overhead cost$600,000 per year

Sales price/unit$40

Units ProducedUnits Sold Units in Ending Inventory

200960,00060,0000

201060,00045,00015,000

201160,00075,0000

UNITS PRODUCED EXCEED UNITS SOLD

ICEAGE COMPANY

Income Statement (Absorption Costing)

For Year Ended December 31, 2010

Sales

Cost of goods sold

Gross margin

S&A expenses

Net income

ICEAGE COMPANY

Income Statement (Variable Costing)

For Year Ended December 31, 2010

Sales

Variable expenses

Variable production costs

Variable S&A expenses

Contribution margin

Fixed expenses

Fixed overhead

Fixed S&A expenses

Net income

Variable Costing and Absorption Costing

UNITS PRODUCED ARE LESS THAN UNITS SOLD

ICEAGE COMPANY

Income Statement (Absorption Costing)

For Year Ended December 31, 2011

Sales

Cost of goods sold

Gross margin

S&A expenses

Net income

ICEAGE COMPANY

Income Statement (Variable Costing)

For Year Ended December 31, 2011

Sales

Variable expenses

Variable production costs

Variable S&A expenses

Contribution margin

Fixed expenses

Fixed overhead

Fixed S&A expenses

Net income

1.What is gross margin if 45,000 units are sold?

A.$650,000

B.$675,000

C.$700,000

D.$725,000

2.What is net income under absorption costing if 45,000 units are sold?

A.$375,000

B.$380,000

C.$385,000

D.$390,000

3.What is contribution margin if 45,000 units are sold?

A.$1,035,000

B.$1,040,000

C.$1,045,000

D.$1,050,000

4.What is net income under variable costing if 45,000 units are sold?

A.$190,000

B.$205,000

C.$220,000

D.$235,000

5.What is gross margin if 75,000 units are sold?

A. $1,123,000

B.$1,125,000

C.$1,230,000

D.$1,345,000