ACC 505 Homework Week 3

ACC 505 Homework Week 3 - 1. (TCO E) Topple Company...

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Unformatted text preview: 1. (TCO E) Topple Company produces a single product. Operating data for the company and its absorption costing income statement for the last year is presented below: Units in beginning inventory...................................2,000 Units produced.................... ............................9,000 Units sold........................................ ..............10,000 Sales.........................................................$100,000 Less cost of goods sold: Beginning inventory.............................................. 12,000 Add cost of goods manufactured..................54,000 Goods available for sale...............................66,000 Less ending inventory....................................6,000 Cost of goods sold......................................60,000 Gross margin ..............................................40,000 Less selling & admin. expenses....................28,000 Net operating income................................$ 12,000 Variable manufacturing costs are $4 per unit. Fixed factory overhead totals $18,000 for the year. This overhead was applied at a rate of $2 per unit. Variable selling and administrative expenses were $1 per unit sold. Required: Prepare a new income statement for the year using variable costing. Comment on the differences between the absorption costing and the variable costing income statements. workings ($) ($) Sales 100,000 Less : Variable Cost of Goods Sold Opening Inventory Cost of Goods Manufactured 13,500 X $4 54,000 Goods Available For Sale 54,000 Less : Closing Inventory 1,500 X $4 (6,000) (48,000) Contribution 52,000 Less : Variable Selling & Admin Cost 10,000 X 1 (10,000) 42,000 Less Fixed Expenses Fixed Factory OHD (18,000) Fixed Selling & Admin Cost 28,000 10,000 (18,000) Net Operating Income 6,000 The difference in the operating profit in both variable costing and absorption costing is due to the difference in Closing Inventory Valuation. In variable costing method, closing inventory is values at variable cost only while in absorption costing the inventory is valued at a higher price because it includes portion of Fixed Cost. When Closing Inventory is higher, the profit is higher. As such, the profit shown in Absorption costing is higher than that calculated using variable costing method. Following is the Profit Reconciliation Statement Absorption Costing Profit 12,000 Less : Fixed Cost Element in Closing Inventory ($4 X 1,500)...
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This note was uploaded on 03/29/2012 for the course ACC 505 taught by Professor Gilbert during the Spring '12 term at DeVry Houston.

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ACC 505 Homework Week 3 - 1. (TCO E) Topple Company...

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