Ogilvy Company manufactures and sells one product. The following information per

Question

Ogilvy Company manufactures and sells one product. The following information pertains to each of the company's first three years of operations Variable cost per unit: Direct materials 20 Fixed costs per year: Direct labor Fixed manufacturing overhead Fixed selling and administrative expenses $ 832,000 $ 826,000 $ 232,000 The company does not incur any variable manufacturing overhead costs or variable selling and administrative expenses. During its first year of operations, Ogilvy produced 64,000 units and sold 64,000 units. During its second year of operations, it produced 64,000 units and sold 61,400 units. In its third year, Ogilvy produced 64,000 units and sold 66,600 units. The selling price of the company's product is $50 per unit. Required 1. Assume the company uses super-variable costing a. Compute the unit product cost for Year 1, Year 2, and Year 3 b. Prepare an income statement for Year 1, Year 2, and Year 3 2. Assume the company uses a variable costing system that assigns $13 of direct labor cost to each unit produced a. Compute the unit product cost for Year 1, Year 2, and Year 3 b. Prepare an income statement for Year 1, Year 2, and Year 3 3. Reconcile the difference between the super-variable costing and variable costing net operating incomes in Years 1, 2, and 3 Complete this question by entering your answers in the tabs below Req 1A Req 1B Req 2A Req 2B Req 3

Explanation / Answer

1 a&b) when the company uses super-variable costing: Year Per Unit $ Year 1 $ Year 2 $ Year 3 $ Sales 50 3200000 3070000 3330000 Less: super variable costs 20 1280000 1228000 1332000 (64000*20) Super Contribution 30 1920000 1842000 1998000 Less: Fixed costs 1890000 1890000 1890000 (832000+826000+232000) NOI 30000 -48000 108000 2 a&b) when the company uses variable costing system: Year Per Unit $ Year 1 $ Year 2 $ Year 3 $ Sales 50 3200000 3070000 3330000 Less: variable costs 33 2112000 2026200 2197800 (64000*33) Contribution 17 1088000 1043800 1132200 Less: Fixed costs 1058000 1058000 1058000 (826000+232000) NOI 30000 -14200 74200 3) Reconciliation between super-variable costing and variable costing NOI: Year 1 Year 2 Year 3 Super-vari costing NOI (L) 30000 -48000 108000 Add/Less: Transfer of Direct Labor to next year 0 2600*13=33800 -33800 Variable costing NOI (L) 30000 -14200 74200

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