Which costing method produces the highest April 30 balance in Finished Goods

# Which costing method produces the highest april 30

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Which costing method produces the highest April 30 balance in Finished Goods Inventory? Explain why.
ACCOUNTING - Tenth Edition Solutions Manual Chapter 21: Cost-Volume-Profit Analysis Page 70 of 132 E21A-47 Requirements 1. Prepare the May income statement using variable costing. 2. Determine the balance in Finished Goods Inventory as of May 31. Solution: Requirement 1 VITASPORT Contribution Margin Income Statement For the Month Ending May 31, 2014 Sales Revenue (\$22/case × 23,000 cases) \$ 506,000 Variable Costs: Manufacturing (\$10/unit × 23,000 units) \$ 230,000 Selling & Administrative (\$4/unit × 23,000 units) 92,000 322,000 Contribution Margin 184,000 Fixed Costs: Manufacturing Overhead 40,000 Selling & Administrative 15,000 55,000 Operating Income \$ 129,000 Requirement 2 The finished goods inventory as of May 31, 2014 is \$0. Beginning balance + Units produced – Units sold = Ending balance 3,000 units + 20,000 units – 23,000 units = 0 units
ACCOUNTING - Tenth Edition Solutions Manual Chapter 21: Cost-Volume-Profit Analysis Page 71 of 132 E21A-48 Requirements 1. Prepare the May income statement using absorption costing. 2. 3. Determine the balance in Finished Goods Inventory as of May 31. Solution: Requirement 1 VITASPORT Income Statement For the Month Ending May 31, 2014 Sales Revenue (\$22/case × 23,000 cases) \$ 506,000 Cost of Goods Sold: Variable (\$10/unit × 23,000 units) \$ 230,000 Fixed [(\$40,000 + (\$40,000 × 46,000 3,000/20,000)]* 276,000 Gross Profit 230,000 Selling & Administrative Costs: Variable 92,000 Fixed 15,000 107,000 Operating Income \$ 123,000 *\$40,000 FOH from May production + 3,000/20,000 of April’s FOH in beginning FG Inventory Requirement 2 The operating income under the absorption cost method is less than the operating income under the variable cost method. The reason for this is that the 3,000 cases in beginning Finished Goods Inventory included \$6,000 in fixed manufacturing costs that were not included in the inventory under the variable cost method. Is operating income using absorption costing higher or lower than variable costing income? Explain why.
ACCOUNTING - Tenth Edition Solutions Manual Chapter 21: Cost-Volume-Profit Analysis Page 72 of 132 Requirement 3 The finished goods inventory as of May 31, 2014 is \$0. Beginning balance + Units produced – Units sold = Ending balance 3,000 units + 20,000 units – 23,000 units = 0 units
ACCOUNTING - Tenth Edition Solutions Manual Chapter 21: Cost-Volume-Profit Analysis Page 73 of 132 P21-49A Requirements 1. Fill in the blanks for each missing value. (Round the contribution margin per unit to the nearest cent.) 2. Which company has the lowest breakeven point in sales dollars? 3. What causes the low breakeven point? Solution: Requirement 1 Company Blue Red Green Yellow Sales Revenue \$ 960,000 \$(d) 440,000 \$ 770,000 \$(j) 270,000 Variable Costs (a) 528,000 132,000 462,000 162,000 Fixed Costs (b) 400,000 145,000 220,000 (k)15,000 Operating Income (Loss) \$ 32,000 \$ (e)163,000 \$(g) 88,000 \$ 93,000 Units Sold 160,000 11,000 (h) 4,000 (l) 6,750 Contribution Margin per Unit \$ 2.70 \$ (f) 28.00 \$ 77.00 \$ 16.00 Contribution Margin Ratio (c) 45% 70% (i) 40% 40%
ACCOUNTING - Tenth Edition Solutions Manual Chapter 21: Cost-Volume-Profit Analysis Page 74 of 132 Calculations: a. \$960,000 – (160,000 units × \$2.70 per unit) b. \$960,000 – \$528,000 – \$32,000 c. (\$960,000 – \$528,000) / \$960,000 d. \$132,000 / (1 – 70%) e. \$440,000 – \$132,000 – \$145,000 f. (\$440,000 – \$132,000) / 11,000 units g. \$770,000 – \$462,000 – \$220,000 h. (\$770,000 – \$462,000) / \$77 per unit i. (\$770,000 – \$462,000) / \$770,000 j. \$162,000 / (1 – 40%) k. \$270,000 – \$162,000 – \$93,000 l. (\$270,000 – \$162,000) / \$16 per unit
ACCOUNTING - Tenth Edition Solutions Manual Chapter 21: Cost-Volume-Profit Analysis Page 75 of 132 Requirement 2

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