ORIE_350_Homework__12_2007_answers_rev

ORIE_350_Homework__12_2007_answers_rev - ORIE 350...

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ORIE 350 Homework #12 Due May 3, 2007 Please work the problems in the order in which they are assigned. Please put your section number on your submitted homework. 1. Pneumotech manufactures industrial air compressors. The following data are for October 2006. The company had 200 units in beginning inventory. In October, 1,500 units were produced, and 1,200 were sold. The average selling price was $4,500. Variable Costs (per unit) Direct Materials $ 600 Direct Labor 1,500 Variable MOH 300 Variable selling and admin. 70 Fixed Costs (total) Manufacturing Overhead $ 1,600,000 Selling and admin. 100,000 a) Compute the cost of ending inventory using absorption costing. Assume that Pneumotech uses LIFO inventory costing and carries the beginning inventory at $3,100 fully absorbed cost per unit. There are 200 units @$3,100, and 300 units @ $3,466.67, totaling $1,660,000. b) Compute the cost of ending inventory using variable costing. Assume that Pneumotech uses LIFO inventory costing and carries the beginning inventory at $2,350 variable cost per unit. There are 200 units @$2,350, and 300 units @ $2,400, totaling $1,190,000. c) Find the operating income for the month, using both absorption and variable costing. Pneumotech Income Statement (GAAP) For the month ended October 31, 2006 Sales Revenue $5,400,000 Cost of Goods Sold (4,160,000) Gross Margin 1,240,000 Selling Expenses (184,000) Operating Income 1,056,000
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Pneumotech Income Statement (non-GAAP) For the month ended October 31, 2006 Sales Revenue $5,400,000 Variable Manufacturing Expenses (2,880,000) Variable Selling and Admin Expenses (84,000) Contribution Margin 2,436,000 Fixed Selling Expenses (100,000) Fixed Manufacturing Overhead (1,600,000) Operating Income $736,000 2. Ionaire Manufacturing has the following costs and prices associated with the production last month for one of its electrostatic air cleaners. Beginning Inventory: 1,000 units Production: 10,000 units Sales 8,500 units Direct materials $14 per unit Direct labor $10 per unit Variable overhead $8.50 per unit Fixed overhead $200,000 per month Selling expenses $115,000 per month Admin. expenses $112,000 per month Selling price $79.75 per unit (wholesale) The inventory, if carried on a fully absorbed cost basis, would have a cost of $50 per unit. The company uses periodic FIFO.
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