Chapter 08 Sol(1) - Exercise85(30minutes) 1.

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Exercise 8-5  (30 minutes) 1. Under variable costing, only the variable manufacturing costs are  included in product costs. Direct materials. ...................................... $ 60 Direct labour. ........................................... 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 (9,000 × $200). ........................... $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     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.
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Exercise 8-5  (continued) 3. The break-even point in units sold can be computed using the  contribution margin per unit as follows: Selling price per unit. ...................... $200 Variable cost per unit. .....................   120     Contribution margin per unit. .......... $        80     Fixed expenses Break-even unit sales =  Unit contribution margin $750,000 $80 per unit = 9,375 units
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Exercise 8-6  (20 minutes) 1. Under absorption costing, all manufacturing costs (variable and  fixed) are included in product costs. Direct materials. ...................................... $ 60 Direct labour. ........................................... 30 Variable manufacturing overhead. ........... 10 Fixed manufacturing overhead  ($300,000 ÷ 10,000 units). ....................       30     Unit product cost. .................................... $130 2. The absorption costing income statement appears below: Sales (9,000 units × $200 per unit). .......... $1,800,000 Cost of goods sold: Beginning inventory. ............................... $            0
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This note was uploaded on 12/04/2011 for the course ADM 2341 taught by Professor Managerialaccounting during the Spring '07 term at University of Ottawa.

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Chapter 08 Sol(1) - Exercise85(30minutes) 1.

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