Ch%209%20Selected%20Problem%20Solutions

Ch%209%20Selected%20Problem%20Solutions - CHAPTER 9...

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CHAPTER 9 INVENTORY COSTING AND CAPACITY ANALYSIS (Selected Problem Solutions) 9-20 (40 min) Variable versus absorption costing. 1. Income Statement for the Zwatch Company, Variable Costing for the Year Ended December 31, 2009 Revenues: $22 × 345,400 $7,598,800 Variable costs Beginning inventory: $5.10 × 85,000 $ 433,500 Variable manufacturing costs: $5.10 × 294,900 1,503,990 Cost of goods available for sale 1,937,490 Deduct ending inventory: $5.10 × 34,500 (175,950 ) Variable cost of goods sold 1,761,540 Variable operating costs: $1.10 × 345,400 379,940 Adjustment for variances 0 Total variable costs 2,141,480 Contribution margin 5,457,320 Fixed costs Fixed manufacturing overhead costs 1,440,000 Fixed operating costs 1,080,000 Total fixed costs 2,520,000 Operating income $2,937,320 Absorption Costing Data Fixed manufacturing overhead allocation rate = Fixed manufacturing overhead/Denominator level machine-hours = $1,440,000 ÷ 6,000 = $240 per machine-hour Fixed manufacturing overhead allocation rate per unit = Fixed manufacturing overhead allocation rate/standard production rate = $240 ÷ 50 = $4.80 per unit 9-1
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Income Statement for the Zwatch Company, Absorption Costing for the Year Ended December 31, 2009 Revenues: $22 × 345,400 $7,598,800 Cost of goods sold Beginning inventory ($5.10 + $4.80) × 85,000 $ 841,500 Variable manuf. costs: $5.10 × 294,900 1,503,990 Allocated fixed manuf. costs: $4.80 × 294,900 1,415,520 Cost of goods available for sale $3,761,010 Deduct ending inventory: ($5.10 + $4.80) × 34,500 (341,550) Adjust for manuf. variances ($4.80 × 5,100) a 24,480 U Cost of goods sold 3,443,940 Gross margin 4,154,860 Operating costs Variable operating costs: $1.10 × 345,400 $ 379,940 Fixed operating costs 1,080,000 Total operating costs 1,459,940 Operating income $2,694,920 a Production volume variance = [(6,000 hours × 50) – 294,900] × $4.80 = (300,000 – 294,900) × $4.80 = $24,480 2. Zwatch’s operating margins as a percentage of revenues are Under variable costing: Revenues $7,598,800 Operating income 2,937,320 Operating income as percentage of revenues 38.7% Under absorption costing: Revenues $7,598,800 Operating income 2,694,920 Operating income as percentage of revenues 35.5% 3. Operating income using variable costing is about 9% higher than operating income calculated using absorption costing. Variable costing operating income – Absorption costing operating income = $2,937,320 – $2,694,920 = $242,400 Fixed manufacturing costs in beginning inventory under absorption costing – Fixed manufacturing costs in ending inventory under absorption costing = ($4.80 × 85,000) – ($4.80 × 34,500) = $242,400 9-2
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4. The factors the CFO should consider include (a) Effect on managerial behavior. (b) Effect on external users of financial statements.
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Ch%209%20Selected%20Problem%20Solutions - CHAPTER 9...

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