Inventory Cost Under Absorption and Variable Costing During the most recent year
ID: 2520561 • Letter: I
Question
Inventory Cost Under Absorption and Variable Costing During the most recent year, B & O Cafe had the following data associated with the items it makes: Units in beginning inventory Units produced Units sold ($200 per unit) Variable costs per unit 17,000 14,000 Direct materials Direct labour Variable overhead $35 $65 $30 Fixed costs Fixed manufacturing overhead per unit produced Fixed selling and administrative expense $20 $200,000 Required 1. How many units are in ending inventory? units 2. Using absorption costing, calculate the per-unit product cost. What is the value of ending inventory? Unit product cost Value of ending inventory 3. Using variable costing, calculate the per-unit product cost. What is the value of ending inventory? Unit product cost Value of ending inventory 4. Calculate operating income using absorption costing 5. Calculate operating income using variable costingExplanation / Answer
1.
Units in ending inventory = (Units in beginning inventory + units produced) – units sold
= 17,000 – 14,000 = 13,000
2.
Absorption Costing
Direct Material
$ 35
Direct Labor
$ 65
Variable Overhead
$ 30
Fixed manufacturing Overhead
$ 20
Unit product cost
$ 150
Ending inventory = Unit product cost x No. of units in ending inventory
= $ 150 x 13,000 = $ 1,950,000
3.
Variable Costing
Direct Material
$ 35
Direct Labor
$ 65
Variable Overhead
$ 30
Unit product cost
$ 130
Ending inventory = Unit product cost x No. of units in ending inventory
= $ 130 x 13,000 = $ 1,690,000
4.
Income Statement under Absorption Costing
Sales ($200 x 14,000)
$ 2,800,000
Less: Cost of Goods Sold
$150 x 14,000
$ 2,100,000
Gross Profit
$ 700,000
Less: Fixed Selling and administrative Cost
$ 200,000
Operating income
$ 500,000
5.
Income Statement under Variable Costing
Sales ($200 x 14,000)
$ 2,800,000
Less: Variable Cost
$130 x 14,000
$ 1,820,000
Contribution Margin
$ 980,000
Less:
Fixed Manufacturing Cost
$20 x $14,000
$ 280,000
Fixed Selling and administrative Cost
$ 200,000
Total Fixed Cost
$ 480,000
Operating income
$ 500,000
Absorption Costing
Direct Material
$ 35
Direct Labor
$ 65
Variable Overhead
$ 30
Fixed manufacturing Overhead
$ 20
Unit product cost
$ 150
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.