ch. 9 solutions - 9-16(30 min Variable and absorption...

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9-16 (30 min.) Variable and absorption costing, explaining operating-income differences.1.Key inputs for income statement computations areAprilMayBeginning inventoryProductionGoods available for saleUnits soldEnding inventory050050035015015040055052030The budgeted fixed cost per unit and budgeted total manufacturing cost per unit under absorption costing areAprilMay(a)Budgeted fixed manufacturing costs(b)Budgeted production(c)=(a)÷(b)Budgeted fixed manufacturing cost per unit(d)Budgeted variable manufacturing cost per unit(e)=(c)+(d)Budgeted total manufacturing cost per unit$2,000,000500$4,000$10,000$14,000$2,000,000500$4,000$10,000$14,000(a)Variable costingApril 2011May 2011Revenuesa$8,400,000$12,480,000Variable costsBeginning inventory$ 0$1,500,000Variable manufacturing costsb5,000,0004,000,000Cost of goods available for sale5,000,0005,500,000Deduct ending inventoryc(1,500,000)(300,000)Variable cost of goods sold3,500,0005,200,000Variable operating costsd1,050,0001,560,000Total variable costs4,550,0006,760,000Contribution margin3,850,0005,720,000Fixed costsFixed manufacturing costs2,000,0002,000,000Fixed operating costs600,000600,000Total fixed costs2,600,0002,600,000Operating income$1,250,000$3,120,000a $24,000 × 350; $24,000 × 520c$10,000 × 150; $10,000 × 30b$10,000 × 500; $10,000 × 400d $3,000 × 350; $3,000 × 5209-1
(b)Absorption costingApril 2011May 2011Revenuesa$8,400,000$12,480,000Cost of goods soldBeginning inventory$ 0$2,100,000Variable manufacturing costsb5,000,0004,000,000Allocated fixed manufacturing costsc2,000,0001,600,000Cost of goods available for sale7,000,0007,700,000Deduct ending inventoryd(2,100,000)(420,000) Adjustment for prod.-vol. variancee0400,000UCost of goods sold4,900,0007,680,000Gross margin3,500,0004,800,000Operating costsVariable operating costsf1,050,0001,560,000Fixed operating costs600,000600,000Total operating costs1,650,0002,160,000Operating income$1,850,000$ 2,640,000a$24,000 × 350; $24,000 × 520d$14,000 × 150; $14,000 × 30b$10,000 × 500; $10,000 × 400e$2,000,000 – $2,000,000; $2,000,000 – $1,600,000c$4,000 × 500; $4,000 × 400f$3,000 × 350; $3,000 × 5202.= April:$1,850,000 – $1,250,000=($4,000 × 150) – ($0)$600,000=$600,000May:$2,640,000 – $3,120,000=($4,000 × 30) – ($4,000 × 150)– $480,000=$120,000 – $600,000– $480,000=– $480,000The difference between absorption and variable costing is due solely to moving fixed manufacturing costs into inventories as inventories increase (as in April) and out of inventories as they decrease (as in May).
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9-17(20 min.)Throughput costing (continuation of Exercise 9-16).1.April 2011May 2011Revenuesa$8,400,000$12,480,000Direct material cost of goods soldBeginning inventoryDirect materials in goods manufacturedb$ 03,350,000$1,005,0002,680,000Cost of goods available for saleDeduct ending inventoryc3,350,000(1,005,000)3,685,000(201,000)Total direct material cost of goods soldThroughput marginOther costs2,345,0006,055,0003,484,0008,996,000Manufacturing costs3,650,000d3,320,000eOther operating costs1,650,000f2,160,000gTotal other costsOperating income5,300,000$ 755,0005,480,000$ 3,516,000a$24,000 × 350; $24,000 × 520e($3,300 × 400) + $2,000,000b$6,700 × 500; $6,700 × 400f($3,000 × 350) + $600,000c$6,700 × 150; $6,700 × 30g ($3,000 × 520) + $600,000d($3,300 × 500) + $2,000,0002.Operating income under:AprilMayVariable costingAbsorption costingThroughput costing$1,250,0001,850,000755,000$3,120,0002,640,0003,516,000In April, throughput costing has the lowest operating income, whereas in May throughput costing has the highest operating income. Throughput costing puts greater emphasis on sales as the source of operating income than does either absorption or variable costing. 3.Throughput costing puts a penalty on production without a corresponding sale in the same period. Costs other than direct materials that are variable with respect to production are expensed in the period of incurrence, whereas under variable costing they would be capitalized.

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