NOTE I JUST DONT KNOW HOW TO SOLVE 4 Please HELP Question 2 VARIABLE COSTING, AB
ID: 2521413 • Letter: N
Question
NOTE I JUST DONT KNOW HOW TO SOLVE 4 Please HELP
Question 2
VARIABLE COSTING, ABSORPTION COSTING, INVENTORY VALUATION (LO 1)
Dynasty Company manufactures stackable plastic cubes that are used for storage in dorm rooms. In August 2010, Dynasty began producing multi-coloured cubes. During the month of August, 9,000 were produced, and 8,800 were sold at $7.50 each. The following costs were incurred:
Direct materials $10,800
Direct labour 6,750
Variable overhead 5,850
Fixed overhead 27,900
A selling commission of 10 percent of sales price was paid. Administrative expenses, all fixed, amounted to $23,000.
Required:
1 )Calculate the unit cost and the cost of ending inventory under absorption costing.
Particular
Amount
Direct materials ( $10,800 / 9,000)
1.20
Direct labour ( $6,750 / 9,000)
0.75
Variable overhead ( $5,850 / 9,000)
0.65
Fixed overhead ( $27,900 / 9,000)
3.10
Unit cost under absorption costing.
$5.70
Cost of ending inventory under absorption costing = (9,000 - 8,800) * $5.70 = $1,140
2)Calculate the unit cost and the cost of ending inventory under variable costing.
Particular
Amount
Direct materials ( $10,800 / 9,000)
1.20
Direct labour ( $6,750 / 9,000)
0.75
Variable overhead ( $5,850 / 9,000)
0.65
Unit cost under variable costing.
$2.60
Cost of ending inventory under variable costing = (9,000 - 8,800) * $2.60 = $520
3)What is the contribution margin per unit?
Variable costs per unit = Unit cost under variable costing + Selling commission
= $2.60 + (10 % * $7.50) = $3.35
Contributon per unit = Selling price - Variable costs per unit = $7.50 - $3.35 = $4.15
4) Dynasty believes that multi-coloured cubes will really take off after one year of sales. Management thinks August 2011 sales will be twice as high as August 2010 sales. Prepare an income statement for August 2011 using the assumed higher level of sales. Which costing method should be used—absorption costing or variable costing?
Particular
Amount
Direct materials ( $10,800 / 9,000)
1.20
Direct labour ( $6,750 / 9,000)
0.75
Variable overhead ( $5,850 / 9,000)
0.65
Fixed overhead ( $27,900 / 9,000)
3.10
Unit cost under absorption costing.
$5.70
Explanation / Answer
Sales volume in the month of Aug 2011 ( 8,800 x 2 ) 17,600 Assume, monthly production 9,000 Beginning inventory for the month of Aug 2011 8,600 Income Statement Absorption costing Account's tittle $ $ Sales Revenue ( 17,600 units x $ 7.50 ) 132,000 Less: Cost of goods sold; Beginning inventory ( 8,600 units x $ 5.70 ) 49,020 Direct Material 10,800 Direct Labor 6,750 Variable overhead 5,850 Fixed overhead 27,900 Total cost of goods sold 100,320 Gross profit 31,680 Less: Administrative expenses (23,000) Less: Selling commission ( $ 132,000x 10% ) (13,200) Net profit (4,520) Income Statement Variable costing Account's tittle $ $ Sales Revenue ( 17,600 units x $ 7.50 ) 132,000 Less: selling commission ( $ 132,000 x 10% ) (13,200) Net Sales Revenue 118,800 Less: Cost of goods sold; Beginning inventory ( 8,600 units x $ 2.60 ) 22,360 Direct Material 10,800 Direct Labor 6,750 Variable overhead 5,850 Total cost of goods sold 45,760 Gross profit 73,040 Less: Administrative expenses (23,000) Less": Fixed overhead (27,900) Net profit 22,140 From the above , Variable costing method shows good result.
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