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PROBLEM 7

# PROBLEM 7 - Sales(9,000 tents X \$150 \$1,350,000 Variable...

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PROBLEM 7-1A (a) (i) Per Tent Direct materials \$40 Direct labor 16 Variable manufacturing overhead 4 Fixed manufacturing overhead (\$200,000 ÷ 10,000) 20 Manufacturing cost \$80 (ii) BLUE MOUNTAIN PRODUCTS Income Statement For the Month Ended June 30, 2005 Absorption Costing _______________________________________________________ ________ Sales (9,000 tents X \$150) \$1,350,000 Cost of goods sold (9,000 tents X \$80) 720,000 Gross profit 630,000 Variable selling and administrative costs (9,000 tents X \$6) \$ 54,000 Fixed selling and administrative costs 400,000 454,000 Net income \$ 176,000 (b) (i) Per Tent Direct materials \$40 Direct labor 16 Variable manufacturing overhead 4 Manufacturing cost \$60 (ii) BLUE MOUNTAIN PRODUCTS Income Statement For the Month Ended June 30, 2005 Variable Costing

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Unformatted text preview: ________ Sales (9,000 tents X \$150) \$1,350,000 Variable cost of goods sold (9,000 tents X \$60) \$540,000 Variable selling and administrative costs (9,000 tents X \$6) 54,000 594,000 Contribution margin 756,000 Fixed manufacturing overhead 200,000 Fixed selling and administrative costs 400,000 600,000 Net income \$ 156,000 PROBLEM 7-1A (Continued) (c) When production exceeds sales, absorption costing net income will exceed variable costing net income by an amount equal to the fixed overhead rate times the number of units in ending inventory. The ending inventory for June was 1,000 tents and the fixed overhead rate was \$20 per tent. The difference in net income is \$20,000 (\$176,000 – \$156,000) which equals the 1,000 tents times the \$20 fixed overhead rate....
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