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:

The company does not incur any variable manufacturing overhead costs or variable selling and administrative expenses. During its first year of operations, Ogilvy produced 70,000 units and sold 70,000 units. During its second year of operations, it produced 70,000 units and sold 66,200 units. In its third year, Ogilvy produced 70,000 units and sold 73,800 units. The selling price of the company’s product is $61 per unit.

Assume the company uses a variable costing system that assigns $19 of direct labor cost to each unit produced:

  Variable cost per unit:       Direct materials $ 26     Fixed costs per year:    Direct labor $ 1,330,000      Fixed manufacturing overhead $ 832,000      Fixed selling and administrative expenses $ 266,000  

Explanation / Answer

(All amounts in $) 1. Oglivy - Using Super Variable Costing a. No. of units Direct Total Product produced Material cost Cost $ per unit $ Year 1 70000 26 1820000 Year 2 66200 26 1721200 Year 3 73800 26 1918800 b. Income Statement year wise Sales Product Cost Gross Margin Fixed Net Costs Margin Year 1 4270000 1820000 2450000 2428000 22000 Year 2 4038200 1721200 2317000 2428000 -111000 Year 3 4501800 1918800 2583000 2428000 155000 2. Oglivy - Using Variable Costing Method a. No. of units Variable Total Product sold Costs per Cost $ unit $ Year 1 70000 45 3150000 Year 2 66200 45 2979000 Year 3 73800 45 3321000 b. Income Statement year wise Sales Product Cost Gross Margin Fixed Net Costs Margin Year 1 4270000 3150000 1120000 1098000 22000 Year 2 4038200 2979000 1059200 1170200 -111000 Year 3 4501800 3321000 1180800 1025800 155000 3. There is no difference between the Net Operating Incomes for Years 1,2 and 3 as per Super Variable Costing and Variable Costing methods used.

Related Questions

Navigate

• Browse (All)
• Browse O
• Subjects

---

---

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