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# Exercise 8-26.Inventory Valuation The following information pertains to Chacon Inc. for last year: Beginning inventory in units.5,000 Units...

Exercise 8-26 ........................................................................................................... Inventory Valuation The following information pertains to Chacon Inc. for last year: Beginning inventory in units ........................................................ 5,000 Units produced .......................................................................... 20,000 Units sold ................................................................................... 23,700 Costs per unit: Direct materials ....................................................................... \$8.00 Direct labor .............................................................................. \$4.00 Variable overhead .................................................................... \$1.50 Fixed overhead * ....................................................................... \$4.15 Variable selling expenses ........................................................ \$3.00 Fixed selling and administrative expenses ............................... \$24,300 * Fixed overhead totals \$83,000 per year. Required: 1. Calculate the cost of one unit of product under absorption costing . Unit Direct Materials cost. ................................................................................. Unit Direct Labor cost. ....................................................................................... Unit Variable Overhead cost. ............................................................................. Unit Fixed Overhead cost. .................................................................................. Absorption cost per unit. .............................................................................. 2. Calculate the cost of one unit of product under variable costing . Unit Direct Materials cost. ................................................................................. Unit Direct Labor cost. ....................................................................................... Unit Variable Overhead cost. ............................................................................. Variable cost per unit. .................................................................................. 3. How many units are in ending inventory? Beginning inventory. .......................................................................................... Units produced. .................................................................................................. Units available for sale. ...................................................................................... Units sold. ........................................................................................................... Ending inventory. ............................................................................................... 4. Calculate the cost of ending inventory under absorption costing. Absorption-costing inventory: × units = 5. Calculate the cost of ending inventory under variable costing. Variable-costing inventory: × units = 1
Exercise 8-36 ............................................................................................................ Inventory Valuation During its first year of operations, Sugarsmooth Inc. produced 55,000 jars of hand cream based on a formula containing 10% glycolic acid. Unit sales were 52,300 jars. Fixed overhead totaled \$27,500 and was applied at the rate of \$0.50 per unit produced. The results of the year’s operations are as follows (on an absorption-costing basis): Sales (52,300 units @ \$8.70) ................................................ \$455,010 Less : Cost of goods sold ...................................................... 222,275 Gross margin. ............................................................... \$232,735 Less : Selling and administrative (all fixed) ........................... 145,000 Operating income .......................................................... \$ 87,735 At the end of the first year of operations, Sugarsmooth is considering expanding its customer base. In its first year, it sold to small drugstores and supermarkets. Now, Sugarsmooth wants to add large discount stores and small beauty shops. Working together, the company controller and marketing manager have accumulated the following information: a. Anticipated sales to discount stores would be 20,000 units at a discounted price of \$5.80. High- er costs of shipping and return penalties would be incurred. Shipping would amount to \$8,500 per year, and return penalties would average 4% of sales. In addition, a clerk would need to be hired solely to handle the discount stores’ accounts. The clerk’s salary and benefits would be \$28,000 per year. b. Anticipated sales to beauty shops would be 10,000 units at a price of \$9. A commission of 10% of sales would be paid to independent jobbers who sell to the shops. In addition, an extra packing ex- pense of \$0.50 per unit would be incurred because the shops require fewer bottles per carton. c. The sales to small drugstores and supermarkets will remain the same. d. The fixed overhead and selling and administrative expenses would remain unchanged and are treated as common costs. Required: 1. Calculate the cost of Sugarsmooth’s ending inventory at the end of the first year under absorption costing . Unit cost: ÷ units = \$ / unit Absorption-costing inventory: × units = \$ 2. Calculate the cost of Sugarsmooth’s ending inventory at the end of the first year under variable costing . Unit cost: ÷ units = \$ / unit Variable-costing inventory: × units = \$ What is operating income for the first year using variable costing ? Sales. .................................................................................................................. Less : Variable cost of goods sold ( × units) Contribution Margin. ................................................................................ Less fixed expenses: Fixed overhead. ........................................................................................ Fixed selling and administrative. .............................................................. Operating Income. .............................................................................................. 2
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