Variable Costing and Absorption Costing – Questions 1 – 8. Production Costs Nonp
ID: 2529113 • Letter: V
Question
Variable Costing and Absorption Costing – Questions 1 – 8.
Production Costs Nonproduction Costs
Direct materials cost $4 per unit Variable S&A expenses $2 per unit
Direct labor cost $8 per unit Fixed S&A expenses $200,000 per year
Variable overhead cost $3 per unit
Fixed overhead cost $600,000 per year
Sales price/unit $40
Units Produced Units Sold Units in Ending Inventory
2015 60,000 60,000 0
2016 60,000 45,000 15,000
2017 60,000 75,000 0
UNITS PRODUCED EXCEED UNITS SOLD
ICEAGE COMPANY
Income Statement (Absorption Costing)
For Year Ended December 31, 2016
Sales
Cost of goods sold
Gross profit
S&A expenses
Net income
ICEAGE COMPANY
Income Statement (Variable Costing)
For Year Ended December 31, 2016
Sales
Variable expenses
Variable production costs
Variable S&A expenses
Contribution margin
Fixed expenses
Fixed overhead
Fixed S&A expenses
Net income
Variable Costing and Absorption Costing
UNITS PRODUCED ARE LESS THAN UNITS SOLD
ICEAGE COMPANY
Income Statement (Absorption Costing)
For Year Ended December 31, 2017
Sales
Cost of goods sold
Gross profit
S&A expenses
Net income
ICEAGE COMPANY
Income Statement (Variable Costing)
For Year Ended December 31, 2017
Sales
Variable expenses
Variable production costs
Variable S&A expenses
Contribution margin
Fixed expenses
Fixed overhead
Fixed S&A expenses
Net income
What is gross profit if 45,000 units are sold?
What is net income under absorption costing if 45,000 units are sold?
What is contribution margin if 45,000 units are sold?
What is net income under variable costing if 45,000 units are sold?
What is gross profit if 75,000 units are sold?
A. $1,123,000
What is net income under absorption costing if 75,000 units are sold?
What is contribution margin if 75,000 units are sold?
What is net income under variable costing if 75,000 units are sold?
Explanation / Answer
ICEAGE COMPANY
Income Statement (Absorption Costing)
For Year Ended December 31, 2016
Sales (45000*40) 1,800,000
Cost of goods sold (45000*25) 1,125,000
Gross profit 675,000
S&A expenses 200,000+45000*2 290,000
Net income 385,000
ICEAGE COMPANY
Income Statement (Variable Costing)
For Year Ended December 31, 2016
Sales (45000*40) 1,800 000
Variable expenses
Variable production costs (45000*15)
Variable S&A expenses (45000*2) 765,000
Contribution margin 1,035,000
Fixed expenses
Fixed overhead 600000
Fixed S&A expenses 200000 800,000
Net income 235,000
Contribution Margin
Sales 1,800,000
Variable expenses
Variable production costs (45000*15)
Variable S&A expenses (45000*2) 765,000
Contribution margin 1,035,000
UNITS PRODUCED ARE LESS THAN UNITS SOLD
ICEAGE COMPANY
Income Statement (Absorption Costing)
For Year Ended December 31, 2017
Sales (75000*40) 3,000,000
Cost of goods sold (75000*25) 1,875,000
Gross profit 1,125,000
S&A expenses (200000 +75000*2) 350,000
Net income 775,000
ICEAGE COMPANY
Income Statement (Variable Costing)
For Year Ended December 31, 2017
Sales 75000*40) 3,000,000
Variable expenses
Variable production costs 75000*15= 1125000
Variable S&A expenses 75000*2 = 150,000 1,275,000
Contribution margin 1,725,000
Fixed expenses
Fixed overhead 600,000
Fixed S&A expenses 200,000
Net income 925,000
Contribution Margin
Sales 75000*40) 3,000,000
Variable expenses
Variable production costs 75000*15 1125000
Variable S&A expenses 75000*2 150,000 1,275,000
Contribution margin 1,725,000
What is gross profit if 45,000 units are sold?
675,000
What is net income under absorption costing if 45,000 units are sold?
385,000
What is contribution margin if 45,000 units are sold?
1,035,000
What is net income under variable costing if 45,000 units are sold?
235,000
What is gross profit if 75,000 units are sold?
A. $1,125,000
What is net income under absorption costing if 75,000 units are sold?
775,000
What is contribution margin if 75,000 units are sold?
1,725,000
What is net income under variable costing if 75,000 units are sold?
925,000
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