Oak Mart, a producer of solid oak tables, reports the following data from its se
ID: 2410468 • Letter: O
Question
Oak Mart, a producer of solid oak tables, reports the following data from its second year of business 310 per unit Sales price per unit Units produced this year Units sold this year Units in beginning-year inventory Beginning inventory costs 120,000 units 123,750 units 3,750 units Variable (3,750 units x $140) Fixed (3,750 units x $70) Total $ 525,000 262,500 $. 787,500 Manufacturing costs this year Direct materials Direct labor Overhead costs this year 48 per unit 68 per unit Variable overhead Fixed overhead $3,600,000 $7,200,000 Selling and administrative costs this year Variable Fixed $1,450,000 4,200,000Explanation / Answer
Variable Costing Income Statement Sales $310*123750 units $ 38,362,500.00 Less: Variable costs Beginning inventory (3,750 x $140) $ 525,000.00 Plus: Current variable production costs Direct materials ($48*120000 units) $ 5,760,000.00 Direct labor ($68*120000 units) $ 8,160,000.00 Variable overhead $ 3,600,000.00 Total variable production costs $ 17,520,000.00 Total variable costs available $ 18,045,000.00 Less: Ending Inventory $ - $ 18,045,000.00 Variable selling and administrative expenses $ 1,450,000.00 Total variable costs $ 19,495,000.00 Contribution margin (Sales- Total Variable Cost) $ 18,867,500.00 less: Fixed Expense Fixed selling and administrative $ 4,200,000.00 Fixed manufacturing overhead $ 7,200,000.00 Total fixed costs $ 11,400,000.00 Net income (loss) $ 7,467,500.00 Absorption Costing Income Statement Sales $310*123750 units $ 38,362,500.00 Less: Cost of goods sold Beginning inventory (3,750 x ($140+70)) $ 787,500.00 Plus: Current variable production costs Direct materials ($48*120000 units) $ 5,760,000.00 Direct labor ($68*120000 units) $ 8,160,000.00 Variable overhead $ 3,600,000.00 Fixed manufacturing overhead $ 7,200,000.00 Less: Ending Inventory $ - COGS $ 25,507,500.00 Gross Margin [sales-cogs] $ 12,855,000.00 Selling and administrative expenses $ - Variable selling and administrative $ 1,450,000.00 Fixed selling and administrative $ 4,200,000.00 $ 5,650,000.00 Net income (loss) $ 7,205,000.00 RECONCILATION Net income under variable costing is higher than net income under absorption costing costing by $ 262,500.00 Number of units added to(subtracted from) inventory $ 3,750.00 Fixed overhead cost per unit $ 70.00 Fixed costs added to(subtracted from) inventory $ 262,500.00
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