During the first month of operations ended March 31, 2016, Hip and Conscious Clo
ID: 2459523 • Letter: D
Question
During the first month of operations ended March 31, 2016, Hip and Conscious Clothing Company produced 55,500 designer cowboy hats, of which 51,450 were sold. Operating data for the month are summarized as follows:
1
Sales
$771,750.00
2
Manufacturing costs:
3
Direct materials
$471,750.00
4
Direct labor
127,650.00
5
Variable manufacturing cost
61,050.00
6
Fixed manufacturing cost
55,500.00
715,950.00
7
Selling and administrative expenses:
8
Variable
$36,015.00
9
Fixed
25,725.00
61,740.00
During April, Hip and Conscious Clothing produced 47,400 designer cowboy hats and sold 51,450 cowboy hats. Operating data for April are summarized as follows:
1
Sales
$771,750.00
2
Manufacturing costs:
3
Direct materials
$402,900.00
4
Direct labor
109,020.00
5
Variable manufacturing cost
52,140.00
6
Fixed manufacturing cost
55,500.00
619,560.00
7
Selling and administrative expenses:
8
Variable
$36,015.00
9
Fixed
25,725.00
61,740.00
Required:
1.
Using the absorption costing concept, prepare income statements for (a) March and (b) April.*
2.
Using the variable costing concept, prepare income statements for (a) March and (b) April.*
3a.
Explain the reason for the differences in the amount of income from operations in (1) and (2) for March.
3b.
Explain the reason for the differences in the amount of income from operations in (1) and (2) for April.
4.
Based on your answers to (1) and (2), did Hip and Conscious Clothing Company operate more profitably in March or in April?
* Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. Be sure to complete the statement heading. “Less”, “Plus” or colons (:) will automatically appear if required. If a net loss is incurred, enter that amount as a negative number using a minus sign.
Labels
April 30, 2016
Fixed costs
For the Month Ended April 30, 2016
For the Month Ended March 31, 2016
March 31, 2016
Amount Descriptions
Beginning inventory
Contribution margin
Contribution margin ratio
Cost of goods manufactured
Cost of goods sold
Ending inventory
Fixed manufacturing costs
Fixed selling and administrative expenses
Gross profit
Income from operations
Loss from operations
Manufacturing margin
Planned contribution margin
Sales
Sales mix
Selling and administrative expenses
Variable cost of goods manufactured
Variable cost of goods sold
Variable selling and administrative expenses
1a. Using the absorption costing concept, prepare income statements for (a) March and (b) April. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. Be sure to complete the statement heading. “Less”, “Plus” or colons (:) will automatically appear if required. If a net loss is incurred, enter that amount as a negative number using a minus sign. The following income statement is for March.
Hip and Conscious Clothing Company
Absorption Costing Income Statement
1
2
Cost of goods sold:
3
4
5
6
7
8
1b. Using the absorption costing concept, prepare income statements for (a) March and (b) April. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. Be sure to complete the statement heading. “Less”, “Plus” or colons (:) will automatically appear if required. If a net loss is incurred, enter that amount as a negative number using a minus sign. The following income statement is for April.
Hip and Conscious Clothing Company
Absorption Costing Income Statement
1
2
Cost of goods sold:
3
4
5
6
7
8
2a. Using the variable costing concept, prepare income statements for (a) March and (b) April. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. Be sure to complete the statement heading. “Less”, “Plus” or colons (:) will automatically appear if required. If a net loss is incurred, enter that amount as a negative number using a minus sign. The following income statement is for March.
Hip and Conscious Clothing Company
Variable Costing Income Statement
1
2
Variable cost of goods sold:
3
4
5
6
7
8
9
10
11
12
2b. Using the variable costing concept, prepare income statements for (a) March and (b) April. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. Be sure to complete the statement heading. “Less”, “Plus” or colons (:) will automatically appear if required. If a net loss is incurred, enter that amount as a negative number using a minus sign. The following income statement is for April.
Hip and Conscious Clothing Company
Variable Costing Income Statement
1
2
Variable cost of goods sold:
3
4
5
6
7
8
9
10
11
12
3a. Explain the reason for the differences in the amount of income from operations in (1) and (2) for March.
For March, income from operations reported under costing exceeds that reported under costing due to part of manufacturing costs that are expensed on the costing income statement, but not on the costing income statement.
3b. Explain the reason for the differences in the amount of income from operations in (1) and (2) for April.
For April, income from operations reported under costing is less than that reported under costing due to part of manufacturing costs from March that are expensed on the costing income statement, but not on the costing income statement..
4. Based on your answers to (1) and (2), did Hip and Conscious Clothing Company operate more profitably in March or in April?
The company was equally profitable in March and April under the variable costing concept.
The company was more profitable in March.
The company was more profitable in April.
The company was equally profitable in March and April under the absorption costing concept.
Explanation / Answer
Answer 1. Calculation of Unit Per Cost Under Absorption Costing March April Total Per Unit (Total Cost / 55500 Units) Total Per Unit (Total Cost / 47400 Units) Units Produced 55500 47400 Units Sold 51450 51450 Manufacturing Costs Direct Materials 471,750 8.50 402,900 8.50 Direct Labor 127,650 2.30 109,020 2.30 Variable MOH 61,050 1.10 52,140 1.10 Fixed MOH 55,500 1.00 55,500 1.17 Total Cost 715,950 12.90 619,560 13.07 Income Statement Under Absorption Costing March April Units Sold 51450 51450 Sales 771,750 771,750 Less: Cost of Goods Sold (663,705) (671,805) Gross Profit 108,045 99,945 Less: Selling & Admn. Exp Variable (36,015) (36,015) Fixed (25,725) (25,725) Net Income 46,305 38,205 Cost of Goods Sold March = 51450 Units X 12.90 663,705 April- Goods Manufactured in April - 47400 Units X 13.07 619,560 Goods Manufactured in March - 4050 Units X 12.90 52,245 Total Cost of goods Sold 671,805 Answer 2. Calculation of Unit Per Cost Under Variable Costing March April Total Per Unit (Total Cost / 55500 Units) Total Per Unit (Total Cost / 47400 Units) Units Produced 55500 47400 Units Sold 51450 51450 Manufacturing Costs Direct Materials 471,750 8.50 402,900 8.50 Direct Labor 127,650 2.30 109,020 2.30 Variable MOH 61,050 1.10 52,140 1.10 Total Cost 660,450 11.90 564,060 11.90 Income Statement Under Variable Costing March April Units Sold 51450 51450 Sales 771,750 771,750 Less: Variable Expenses Cost of Goods Sold (612,255) (612,255) Selling & Admn. Exp. (36,015) (36,015) Contribution 123,480 123,480 Less: Fixed Expenses Fixed MOH (55,500) (55,500) Fixed Selling & Admn. Exp (25,725) (25,725) Net Income 42,255 42,255 Cost of Goods Sold March = 51450 Units X 11.90 612,255 April- Goods Manufactured in April - 47400 Units X 11.90 564,060 Goods Manufactured in March - 4050 Units X 11.90 48,195 Total Cost of goods Sold 612,255
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