Summit Manufacturing, Inc. produces snow shovels. The selling price per snow shovel is $30. There is no beginning inventory.
Costs involved in production are:
Direct materials $5.00
Direct labor 4.00
Variable manufacturing overhead 3.00
Total variable manufacturing costs per unit $12.00
Fixed manufacturing overhead per year $180,000
In addition, the company has fixed selling and administrative costs of $160,000 per year.
Exercise E5-1
During the year, Summit produces 50,000 snow shovels and sells 45,000 snow shovels.
Required: What is the value of ending inventory using full costing?
Exercise E5-2
During the year, Summit produces 50,000 snow shovels and sells 45,000 snow shovels.
Required: What is the value of ending inventory using variable costing?
Exercise E5-3
During the year, Summit produces 50,000 snow shovels and sells 45,000 snow shovels.
Required: Calculate the difference in full costing net income and variable costing net income
without preparing either income statement.
Exercise E5-4
During the year, Summit produces 50,000 snow shovels and sells 45,000 snow shovels.
Required: What is the cost of goods sold using full costing?
Exercise E5-5
During the year, Summit produces 50,000 snow shovels and sells 45,000 snow shovels.
Required: What is the variable cost of goods sold?
Exercise E5-6
During the year, Summit produces 50,000 snow shovels and sells 45,000 snow shovels.
Required: What is net income using full costing?
Exercise E5-7
During the year, Summit produces 50,000 snow shovels and sells 45,000 snow shovels.
Required: What is net income using variable costing?
Exercise E5-8
During the year, Summit produces 50,000 snow shovels and sells 45,000 snow shovels.
Required: How much fixed manufacturing overhead is in ending inventory under full costing?
Compare this amount to the difference in the net incomes calculated in Exercise 5-3.