ACC 121- Chapter 20

A business operated at 100% of capacity during its first month, with the following results: Sales (90 units) $90,000 Production costs (100 units): Direct materials $40,000 Direct labor 20,000 Variable factory overhead 2,000 Fixed factory overhead 7,000 69,000 Operating expenses: Variable operating expenses$ 8,000 Fixed operating expenses 1,000 9,000 What is the amount of the contribution margin that would be reported on the variable costing income statement?

$26,200 DM: 40,000/100=400 DL:20,000/100=200 VFO:2,000/100=20 400+200+20=620 (sales-cost of goods manufactured-cost of ending inventory-variable operating expense) (90,000-((620x100)-(620x10))-8000)

The level of inventory of a manufactured product has increased by 6,597 units during a period. The following data are also available: Variable Fixed Unit manufacturing costs of the period $11 $4 Unit operating expenses of the period $3 $3 What would be the effect on income from operations if absorption costing is used rather than variable costing?

$26,388 increase (6,597x$4) is increased bc it would be added to the variable

A business operated at 100% of capacity during its first month and incurred the following costs: Production costs (20,000 units): Direct materials $180,000 Direct labor 240,000 Variable factory overhead 280,000 Fixed factory overhead 100,000 $800,000 Operating expenses: Variable operating expenses $130,000 Fixed operating expenses 50,000 180,000 If 1,500 units remain unsold at the end of the month, what is the amount of inventory that would be reported on the variable costing balance sheet?

$52,500 (180,000+240,000+280,000)/20,000)=35 (35x1,500)=52,500

Gyro Company manufactures Products T and W and is operating at full capacity. To manufacture Product W requires three times the number of machine hours required for Product T. Market research indicates that 1,000 additional units of Product W could be sold. The contribution margin by unit of product is as follows: Product TProduct W Sales price $300 $325 Variable cost of goods sold 235 250 Manufacturing margin $65 $75 Variable selling and administrative expenses 25 10 Contribution margin $40 $65 Calculate the increase or decrease in total contribution margin if 1,000 additional units of Product W are produced and sold.

$55,000 decrease 1000(additional units) X 65 = 65000 for W 3000(must be 3x machine hours for W) X 40 = 120000 for T 120,000-65,000

Question Content Area A business operated at 100% of capacity during its first month and incurred the following costs: Production costs (20,000 units): Direct materials$180,000 Direct labor240,000 Variable factory overhead280,000 Fixed factory overhead 100,000$800,000 Operating expenses: Variable operating expenses$130,000 Fixed operating expenses 50,000180,000 If 1,500 units remain unsold at the end of the month, what is the amount of inventory that would be reported on the variable costing balance sheet?

52,500 (direct materials+ direct labor+ variable FO)/(20,000)=35 (35x1,500)

Cost of Goods Manufactured, using Variable Costing and Absorption Costing On December 31, the end of the first year of operations, Frankenreiter Inc. manufactured 25,600 units and sold 24,000 units. The following income statement was prepared, based on the variable costing concept: Frankenreiter Inc. Variable Costing Income Statement For the Year Ended December 31, 20Y1 Sales $9,600,000 Variable cost of goods sold: Variable cost of goods manufactured$5,376,000 Inventory, December 31(336,000) Total variable cost of goods sold 5,040,000 Manufacturing margin $4,560,000 Total variable selling and administrative expenses 1,150,000 Contribution margin $3,410,000 Fixed costs: Fixed manufacturing costs$1,664,000 Fixed selling and administrative expenses890,000 Total fixed costs 2,554,000 Income from operations $ 856,000 Determine the unit cost of goods manufactured, based on (a) the variable costing concept and (b) the absorption costing concept. Variable costing Absorption costing

a. 210 b. 275 a. Variable costs of goods manufactured ÷ number of units produced b. (Variable cost of goods manufactured + fixed cost of goods manufactured) ÷ number of units produced

Inventory Valuation under Absorption Costing and Variable Costing At the end of the first year of operations, 4,200 units remained in the finished goods inventory. The unit manufacturing costs during the year were as follows: Direct materials $30.10 Direct labor 14.20 Fixed factory overhead 6.70 Variable factory overhead 5.90 Determine the cost of the finished goods inventory reported on the balance sheet under (a) the absorption costing concept and (b) the variable costing concept. a. Absorption costing b. Variable costing

a. 238,980 (DM+DL+Fixed+Var)x4200) b. 210,840 (DM+DL+Var)x4200)

Variable Costing Marley Company has the following information for March: Sales $912,000 Variable cost of goods sold 474,000 Fixed manufacturing costs 82,000 Variable selling and administrative expenses 238,100 Fixed selling and administrative expenses 54,700 Determine the following for Marley Company for the month of March: a. Manufacturing margin b. Contribution margin c. Income from operations

a. 438,000 (912,000-474,000) b. 199,900 (438,000-238,100) c. 63,200 (199,900-82,000-54,700) a. Sales - variable cost of goods sold = manufacturing margin b. Manufacturing margin - variable selling and administrative expenses = contribution margin c. Contribution margin - fixed costs = income from operations

Analyzing Income under Absorption and Variable Costing Variable manufacturing costs are $126 per unit, and fixed manufacturing costs are $157,500. Sales are estimated to be 10,000 units. If an amount is zero, enter "0". a. How much would absorption costing income from operations differ between a plan to produce 10,000 units and a plan to produce 15,000 units? b. How much would variable costing income from operations differ between the two production plans?

a. 52,500 (157,500/15,000)=10.5 10.5x(15,000-10,000)=52,500 b. 0 Remember that since all fixed manufacturing costs are treated as period expenses under variable costing, there are no differences in income between the two plans

Contribution Margin Analysis The actual variable cost of goods sold for a product was $25 per unit, per unit, while the planned variable cost of goods sold was $29 per unit. The volume increased by 2,600 units to 32,100 actual total units. Enter all amounts as positive numbers. a. Determine variable cost quantity factor. b. Determine the unit cost factor for variable cost of goods sold.

a. 75,400 b. 128,400 (a) Recall that Variable Cost Quantity Factor = (Planned Units of Sale - Actual Units Sold) x Planned Unit Cost (b) Recall that Unit Cost Factor = (Planned Cost per Unit - Actual Cost per Unit) x Actual Units Sold

Contribution Margin by Segment The following data are for Moss Creek Apparel: East West Sales volume (units): Product XX 9,400 9,500 Product YY 2,800 5,900 Sales price: Product XX $14 $12 Product YY $20 $21 Variable cost per unit: Product XX $8 $8 Product YY $12 $12 a. Determine the contribution margin for Product YY. b. Determine the contribution margin for the West Region

a. 75,500 Contribution margin for Product YY = Sales Units for East x (Sales price - Variable cost for Product YY in East) + Sales Units for West x (Sales price - Variable cost for Product YY in West) b. 91,100 Contribution margin for West = Sales Units for Product XX: West x (Sales price - Variable cost for Product XX in West) + Sales Units for Product YY: West x (Sales price - Variable cost for Product YY in West)

Analyzing Income under Absorption and Variable Costing Variable manufacturing costs are $72 per unit, and fixed manufacturing costs are $53,200. Sales are estimated to be 6,200 units. If an amount is zero, enter "0". Do not round interim calculations. Round final answer to nearest whole dollar. a. How much would absorption costing income from operations differ between a plan to produce 6,200 units and a plan to produce 7,600 units? b. How much would variable costing income from operations differ between the two production plans?

a. 9,800 1,4000(7600-6200)x7(53,200/7,600) b. 0 a. Remember that under variable costing, regardless of whether 6,200 units or 7,600 units are manufactured, no fixed manufacturing costs are allocated to the units manufactured. Instead, all fixed manufacturing costs are treated as a period expense. Therefore the change in units times the per unit fixed costs for the greater production level is the difference in income between the two costing methods. b. Remember that since all fixed manufacturing costs are treated as period expenses under variable costing, there are no differences in income between the two plans.

At EOM Inc., the beginning inventory is 20,000 units. All of the units manufactured during the period and 16,000 units of the beginning inventory were sold. The beginning inventory fixed costs are $50 per unit, and variable costs are $300 per unit. a. Determine whether variable costing income from operations is less than or greater than absorption costing income from operations. b. Determine the difference in variable costing and absorption income from operations.

a. Greater than b. $800,000 (16,000x50)

Variable Costing—Sales Exceed Production The beginning inventory is 6,500 units. All of the units that were manufactured during the period and 6,500 units of the beginning inventory were sold. The beginning inventory fixed manufacturing costs are $50 per unit, and variable manufacturing costs are $105 per unit. a. Determine whether variable costing income from operations is less than or greater than absorption costing income from operations. b. Determine the difference in variable costing and absorption costing income from operations.

a. variable costing income from operations is greater than absorption costing b. $325,000 (6,500x50)

Variable Costing—Production Exceeds Sales Fixed manufacturing costs are $36 per unit, and variable manufacturing costs are $108 per unit. Production was 134,000 units, while sales were 128,640 units. a. Determine whether variable costing income from operations is less than or greater than absorption costing income from operations. b. Determine the difference in variable costing and absorption costing income from operations.$

a. variable costing income from operations is less than absorption costing b. 192,960 a. Recall that when units manufactured exceed the units sold, the variable costing income from operations will be less than it is for absorption costing. b. (Production units - sales units) x fixed costs per unit = difference between variable and absorption costs

Variable Costing—Production Exceeds Sales Fixed manufacturing costs are $44 per unit, and variable manufacturing costs are $100 per unit. Production was 67,200 units, while sales were 50,400 units. a. Determine whether variable costing income from operations is less than or greater than absorption costing income from operations. b. Determine the difference in variable costing and absorption costing income from operations.

a. variable costing income from operations is less than absorption costing b. 739,200 (67,200-50,400)x44) a. Recall that when units manufactured exceed the units sold, the variable costing income from operations will be less than it is for absorption costing b. (Production units - sales units) x fixed costs per unit = difference between variable and absorption costs

What term is commonly used to describe the concept whereby the cost of manufactured products is composed of direct materials cost, direct labor cost, and all factory overhead cost?

absorption costing

The amount of income under absorption costing will be more than the amount of income under variable costing when units manufactured:

exceed units sold

Under which inventory costing method could increases or decreases in income from operations be misinterpreted to be the result of operating efficiencies or inefficiencies?

only absorption costing

Under variable costing, which of the following costs would not be included in finished goods inventory?

salary of factory supervisor

Management should focus its sales and production efforts on the product or products that will provide

the maximum contribution margin