Varilux manufactures a single product and sells it for $10 per unit. At the begi

Question

Varilux manufactures a single product and sells it for $10 per unit. At the beginning of the year there were 1,000 units in inventory. Upon further investigation, you discover that units produced last year had $3.00 of fixed manufacturing cost and $2.00 of variable manufacturing cost. During the year Varilux produced 10,000 units of product. Each unit produced generated $3.00 of variable manufacturing cost. The total fixed manufacturing cost for the current year was $40,000. There were no inventories at the end of the year.
Using variable costing, what is the profit?
a. $110,000 b. $40,000 c. $38,000 d. $35,000
Using absorption costing, the cost per unit this period would be?
a. $8 per unit b. $5 per unit c. $6 per unit d. $7 per unit
Using absorption costing, the profit would be?
a. $45,000 b. $55,000 c. $35,000 d. $25,000

Explanation / Answer

1. c, 38,000. 2. d, 7 per unit. 3. c, 35,000. For 1st question, profit from selling last year's inventory this year (10 per unit - 2 per unit variable costs) x 1000 = 8,000 (under variable costing the $3 per unit of fixed costs would have been expensed as period costs in the previous year). Profit from this year's inventory 10,000 units x (10 per unit - 3 per unit variable costs) - 40,000 fixed costs = 30,000. Add them together 8,000 from last year's inventory + 30,000 from this year = 38,000. For 2nd question, fixed costs per unit are 40,000/10,000 = 4. variable costs per unit of 3 plus fixed costs per unit of 4 = $7 per unit For 3rd question, take the answer from 1st question using variable costing and subtract the fixed costs for the previous year's inventory, 3 x 1000 units = 3,000. During the preivous year under absorption costing, this 3000 would not have been expensed as a period cost (as in variable costing), rather it would have been capitalized and then expensed the following year when the units were sold.

Related Questions

Navigate

• Browse (All)
• Browse V
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.