Which costing method produces the highest april 30

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