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ACCT303Chapter9

# Variable costing operating income – absorption

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Unformatted text preview: Variable costing operating income – Absorption costing operating income = \$2,937,320 – \$2,694,920 = \$242,400 Fixed manufacturing costs in beginning inventory under absorption costing – Fixed manufacturing costs in ending inventory under absorption costing = (\$4.80 × 85,000) – (\$4.80 × 34,500) = \$242,400 9-10 4. The factors the CFO should consider include (a) Effect on managerial behavior. (b) Effect on external users of financial statements. I would recommend absorption costing because it considers all the manufacturing resources (whether variable or fixed) used to produce units of output. Absorption costing has many critics. However, the dysfunctional aspects associated with absorption costing can be reduced by • Careful budgeting and inventory planning. • Adding a capital charge to reduce the incentives to build up inventory. • Monitoring nonfinancial performance measures. 9-21 (10 min.) Absorption and variable costing. The answers are 1(a) and 2(c). Computations: 1. Absorption Costing : Revenues a Cost of goods sold: Variable manufacturing costs b Allocated fixed manufacturing costs c Gross margin \$2,400,000 360,000 \$4,800,000 2,760,000 2,040,000 Operating costs: Variable operating d Fixed operating Operating income 1,200,000 400,000 1,600,000 \$ 440,000 a \$40 × 120,000 b \$20 × 120,000 c Fixed manufacturing rate = \$600,000 ÷ 200,000 = \$3 per output unit Fixed manufacturing costs = \$3 × 120,000 d \$10 × 120,000 2. Variable Costing : Revenues a Variable costs: Variable manufacturing cost of goods sold b Variable operating costs c Contribution margin Fixed costs: Fixed manufacturing costs Fixed operating costs Operating income \$2,400,000 1,200,000 600,000 400,000 \$4,800,000 3,600,000 1,200,000 1,000,000 \$ 200,000 a \$40 × 120,000 b \$20 × 120,000 c \$10 × 120,000 9-11 9-22 (40 min) Absorption versus variable costing. 1. The variable manufacturing cost per unit is \$55 + \$45 + \$120 = \$220. 2009 Variable-Costing Based Operating Income Statement Revenues (8,960 × \$1,200 per unit) \$10,752,00 Variable costs Beginning inventory \$ Variable manufacturing costs (10,000 units × \$220 per unit) 2,2 00,000 Cost of goods available for sale 2,200,000 Deduct: Ending inventory (1,040 a units × \$220 per unit) ( 228,8 00 ) Variable cost of goods sold 1,971,200 Variable marketing costs (8,960 units × \$75 per unit) 672 ,000 Total variable costs 2,643,2 00 Contribution margin 8,108,800 Fixed costs Fixed manufacturing costs 1,471,680 Fixed R&D 981,120 Fixed marketing 3,124,480 Total fixed costs 5,577,280 Operating income \$ 2,531,520 a Beginning Inventory 0 + Production 10,000 – Sales 8,960 = Ending Inventory 1,040 units 2. 2009 Absorption-Costing Based Operating Income Statement Revenues (8,960 units × \$1,200 per unit) \$10,752,000 Cost of goods sold Beginning inventory \$ Variable manufacturing costs (10,000 units × \$220 per unit) 2,200,000 Allocated fixed manufacturing costs (10,000 units × \$165 per unit) 1,6 50,000 Cost of goods available for sale...
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Variable costing operating income – Absorption costing...

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