# CH 6 - What is ending inventory in units 10,000 7,000 =...

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CH 6 Monday, March 14, 2011 9:37 AM a.82 in course-pack ABS Absorption Costing/Traditional/Full-Costing Sales -CGS: DM DL VOHD FOHD Gross Profit -SG+A Expenses: (Selling, General + Administrative) V SG+A F SG+A Profit Product Costs Period Costs Compare with Direct Costing/Contribution Margin/Variable Costing Sales -VC: DM DL VOHD V SG+A Expenses Contribution Margin -Fixed Costs: FOHD F SG+A Expenses Profit If production = sales, aka inventories don't change - then ABS profit = Direct Costing profit If production > sales, inventories have increased - then ABS profit > Direct Costing profit If production < sales, inventories have decreased - then ABS profit< Direct Costing profit Difference in profit = (change in inventory)(FOHD/unit)

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EXAMPLE Beginning Inventory = 0 units, 10,000 units were produced, DM = \$10,000, DL = \$20,000, VOHD = \$30,000, FOHD: \$50,000, 7,000 of units were sold @ \$32/unit, V SG+A = \$28,000, F SG+A = \$30,000
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Unformatted text preview: +What is ending inventory in units? - 10,000 - 7,000 = 3,000 +Under AC [abs costing], what is product cost/unit? = \$11/unit +Under DC [direct costing], what is product cost/unit? = \$6/unit +Under AC, what is the value of ending inventory? = \$33,000 [3000 x \$11] +Under DC, what is the value of ending inventory? = \$18,000 [3000 x \$6] +What is AC profit? Sales (\$32 x 7000) \$224,000-CGS (\$11 x 7000) \$77,000 GP 147,000-SG+A: V - 28,000 F - 30,000 Profit \$89,000 +What is DC profit? Sales \$224,000-VC: Period Costs (\$6 x 7000) 42,000 V SG+A 28,000 CM 154,000-FC: FOHD 50,000 F SG+A 30,000 Profit \$74,000 +Reconcile the Difference: (change in inventory)(FOHD/unit) = 3000(\$5) = \$15,000 [aka the difference btwn \$74,000 and \$89,000) p.83...
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CH 6 - What is ending inventory in units 10,000 7,000 =...

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