Variable vs. Absorption costing
Assignment 1:
Bertone Inc., which produces a single product, has provided the following data for its most recent month of operation:
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Number of units produced
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7,000
|
|
Variable costs per unit:
|
|
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Direct materials
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$21
|
|
Direct labor
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$63
|
|
Variable manufacturing overhead
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$5
|
|
Variable selling and administrative expenses
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$2
|
|
Fixed costs:
|
|
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Fixed manufacturing overhead
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$168,000
|
|
Fixed selling and administrative expenses
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$595,000
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The Company had no beginning or ending inventories. Unit selling price is $300.
Required:
1. Compute the unit product cost under variable costing as well as absorption costing, Show your work!
2. Prepare Income statement using the traditional form (Absorption costing) as well as the Contribution margin form (variable costing) if sales volume is at 7000 units, 9000 units, and 5000 units.
Assignment 2
UHF Antennas, Inc., produces and sells a unique television antenna. The company has just opened a new plant to manufacture the antenna, and the following cost and revenue data have been reported for the first month of the new plant's operation:
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Beginning inventory
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0
|
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Units produced
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35,000
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|
Units sold
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30,000
|
|
Selling price per unit
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$50
|
|
Selling and administrative expenses:
|
|
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Variable per unit
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$2
|
|
Fixed (total)
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$360,000
|
|
Manufacturing costs:
|
|
|
Direct materials cost per unit
|
$9
|
|
Direct labor cost per unit
|
$8
|
|
Variable manufacturing overhead cost per unit
|
$3
|
|
Fixed manufacturing overhead cost (total)
|
$350,000
|
Management is anxious to see how profitable the new antenna will be and has asked that an income statement be prepared for the month. Assume that direct labor is a variable cost.
Required:
a. Assuming that the company uses absorption costing, compute the unit product cost and prepare an income statement.
b. Assuming that the company uses variable costing, compute the unit product cost and prepare an income statement.
c. Explain the reason for any difference in the ending inventories under the two costing methods and the impact of this difference on reported net operating income.