5-18A Problem 1. The unit product cost under the variable costing method is computed as follows: Direct materials ................................... Direct labor ......................................... Variable manufacturing overhead .......... Unit product cost ................................. $ 8 10 2 $20
With this figure, the variable costing income statements can be prepared: Sales ....................................................... Less variable expenses: Variable cost of goods sold (20,000 units x $20 per unit; 30,000 units x $20 per unit) ................................................... Variable selling and administrative (20,000 units x $3 per unit; 30,000 units x $3 per unit) ............................................. Total variable expenses ............................. Contribution margin .................................. Less fixed expenses: Fixed manufacturing overhead ................. Fixed selling and administrative expenses . Total fixed expenses ................................. Net operating income (loss) ....................... $1,000,000
Year 1
$1,500,000
Year 2
400,000 60,000 460,000 540,000 350,000 250,000 600,000 $ (60,000)
600,000 90,000 690,000 810,000 350,000 250,000 600,000 $ 210,000
2. The reconciliation of absorption and variable costing follows: Variable costing net operating income (loss).. $ (60,000) $ 210,000 Add: Fixed manufacturing overhead cost deferred in inventory under absorption costing (5,000 units $14 per unit) .......... 70,000 Deduct: Fixed manufacturing overhead cost released from inventory under absorption costing (5,000 units $14 per unit) .......... (70,000) Absorption costing net operating income ...... $ 10,000 $ 140,000
Year 1
Year 2
Problem 5-20A 1. Cost of goods sold .................. Advertising ............................ Shipping ................................ Salaries and commissions ........ Insurance Depreciation .............................. .......................... 2. Analysis of the mixed costs: High activity level ........... Low activity level ............ Change .......................... Variable cost element: 7,400 6,500 900 Variable Fixed Mixed Mixed Fixed Fixed
Units
Shipping Expense
P75,600 67,500 P 8,100
Salaries and Commissions
P34,400 30,800 P 3,600
Variable cost = Shipping:
Change in cost Change in activity
P8,100 =P9.00 per unit. 900 units P3,600 =P4.00 per unit. 900 units
Salaries and commissions:
Fixed cost element:
Cost at high level of activity ........ Less variable cost element: 7,400 units P9.00 per unit ..... 7,400 units P4.00 per unit ..... Fixed cost element .....................
Shipping Expense
P75,600 66,600
Salaries and Commissions
P34,400
P 9,000
29,600 P 4,800
Problem 5-20A (continued) The cost formulas are: Shipping: P9,000 per month plus P9.00 per unit or Y = P9,000 + P9.00X. Salaries and commissions: P4,800 per month plus P4.00 per unit or Y = P4,800+ P4.00X. 3. Compania Maritima S.A. Income Statement For the Month Ended June 30 Sales (7,000 units P40 per unit) ....................... Variable expenses: Cost of goods sold (7,000 units P12 per unit) . Shipping (7,000 units P9 per unit) ................. Salaries and commissions (7,000 units P4 per unit) ............................ Contribution margin ........................................... Fixed expenses: Advertising ..................................................... Shipping ........................................................ Salaries and commissions ................................ Insurance ....................................................... Depreciation ................................................... Net operating income......................................... P280,000 P84,000 63,000 28,000 5,000 9,000 4,800 4,000 2,500 175,000 105,000
25,300 P 79,700