In its first year of operation, the company produced 12,420 units but was able t

Question

In its first year of operation, the company produced 12,420 units but was able to sell only 10,500 units. In its second year, the company needed to get rid of excess inventory (the extra 1,920 units produced but not sold in 2014), so it cut back production to 8,580 units

1. Calculate profit for both years using full costing

2.Calculate profit for both years using variable costing

2014 2015 total units produced 12420 10500 2100 selling price per unit 4180 4180 direct material per unit 800 800 direct labor per unit 1600 1600 Variable Manufacturing OH per unit 225 225 fied manufacturing OH per year 2558520 2558520 fixed S&A expense per year 1535400 1535400

Explanation / Answer

Units Calculation                  2,014                            2,015 Opening Balance                         -                              1,920 Units Prodcued                12,420                            8,580 Units sold                10,500                         10,500 Closing Balance                  1,920                                   -   Year 2014.   Year 2015.   Income statement Using Full Costing Amt $ /Unit Total Amt $ Total Amt $ Sales Revenue                  4,180                 43,890,000              43,890,000 Less : Cost of Goods sold Opening Balance                                   -                   5,435,520 Direct Materials                800.00                   9,936,000                 6,864,000 Direct Labor            1,600.00                 19,872,000              13,728,000 Variable Manufacturing Overhead                225.00                   2,794,500                 1,930,500 Fixed manufacturing Overhead                206.00                   2,558,520                 1,767,480 Less : Closing stock at full cost            2,831.00                 (5,435,520)                                -   Total cost of goods sold                 29,725,500              29,725,500 Gross Profit                 14,164,500              14,164,500 Less: S&A expenses                   1,535,400                 1,535,400 Net Operating Income                 12,629,100              12,629,100 Year 2014.   Year 2015.   Income statement Using Variable Costing Amt $ /Unit Total Amt $ Total Amt $ Sales Revenue                  4,180                 43,890,000              43,890,000 Less : Cost of Goods sold Opening Balance                                   -                   5,040,000 Direct Materials                800.00                   9,936,000                 6,864,000 Direct Labor            1,600.00                 19,872,000              13,728,000 Variable Manufacturing Overhead                225.00                   2,794,500                 1,930,500 Less : Closing stock at variable cost            2,625.00                 (5,040,000)                                -   Total variable cost of goods sold                 27,562,500              27,562,500 Contribution Margin            1,555.00                 16,327,500              16,327,500 Less : Fixed costs                                -   Fixed manufacturing Overhead                   2,558,520                 2,558,520 Fixed S&A expenses                   1,535,400                 1,535,400 Total Fixed costs                   4,093,920                 4,093,920 Net Operating Income                 12,233,580              12,233,580

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