SolutionsFeb2728

SolutionsFeb2728 - Exercise 7-5(30 minutes 1 Under variable...

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Unformatted text preview: Exercise 7-5 (30 minutes) 1. Under variable costing, only the variable manufacturing costs are included in product costs. Direct materials....................................... $ 60 Direct labor.............................................. 30 Variable manufacturing overhead............ 10 Unit product cost..................................... $100 Note that selling and administrative expenses are not treated as product costs; that is, they are not included in the costs that are inventoried. These expenses are always treated as period costs and are charged against the current period’s revenue. 2. The variable costing income statement appears below: Sales..................................................... $1,800,000 Variable expenses: Variable cost of goods sold: Beginning inventory......................... $ 0 Add variable manufacturing costs (10,000 units × $100 per unit)....... 1,000,000 Goods available for sale.................. 1,000,000 Less ending inventory (1,000 units × $100 per unit)............................ 100,000 Variable cost of goods sold*............... 900,000 Variable selling and administrative (9,000 units × $20 per unit)............. 180,000 1,080,000 Contribution margin.............................. 720,000 Fixed expenses: Fixed manufacturing overhead........... 300,000 Fixed selling and administrative......... 450,000 750,000 Net operating loss................................. $ (30,000) * The variable cost of goods sold could be computed more simply as: 9,000 units sold × $100 per unit = $900,000. Exercise 7-5 (continued) 3. The break-even point in units sold can be computed using the contribution margin per unit as follows:...
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This note was uploaded on 05/08/2008 for the course BUAD 250B taught by Professor Jackson during the Spring '07 term at USC.

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SolutionsFeb2728 - Exercise 7-5(30 minutes 1 Under variable...

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