Emerson Corporation just completed its first year of operations. Planned and act

Question

Emerson Corporation just completed its first year of operations. Planned and actual production equaled 10,000 units, and sales totaled 9,600 units at $72 per unit. Cost data for the year are as follows: Direct material (per unit) Conversion cost: 12 Direct labor Variable manufacturing overhead Fixed manufacturing overhead 45,000 65,000 220,000 Selling and administrative costs: Variable (per unit) Fixed 118,000 Required 1. Compute the company's total cost for the year assuming that variable manufacturing costs are driven by the number of units produced, and variable selling and administrative costs are driven by the number of units sold 2. How much of this cost would be held in year-end inventory under (a) absorption costing and (b) variable costing? 3. How much of the company's total cost for the year would be included as an expense on the period's income statement under (a) absorption costing and (b) variable costing? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 How much of the company's total cost for the year would be included as an expense on the period's income statement under (a) absorption costing and (b) variable costing? Expense Absorption costing Variable costing KRequired 2 Required 3

Explanation / Answer

Ans:

Cost of goods manufactured under variable costing= direct matrial+Direct labor+variable manufacturing overhead

                                                                                                       = 120000+45000+65000=230000

Cos of goods manufactured under absorption costing= direct matrial+Direct labor+variable manufacturing overhead+ Fixed manufacturing overhead

=230000+220000=450000

Income Statement under Variable costing

Particulars

Units produced

10000

Units sold

9600

Sales value

$691200

Less:Variable cost of goods sold:

Beginning inventory

0

add:Variable cost of good manufactured

230000

Less:Closing Inventory

9200

Variable cost of goods sold

220800

Gross Margin

470400

Less: variable selling and administrative costs

76800

Contribution margin

393600

Less:Fixed manufacturing overhead

220000

Less: Fixed Selling and administrative costs

118000

Net Operating Income

$55600

Income Statement under Absorption costing:

Particulars

Units produced

10000

Units sold

9600

Sales value

$691200

Less: Cost of goods sold:

Beginning inventory

0

add: cost of goods manufactured

450000

Less: Closing Inventory

18000

cost of goods sold

432000

Gross Margin

259200

variable Selling and administrative

76800

Fixed selling and administrative costs

118000

Net Operating Income

$64400

Income Statement under Variable costing

Particulars

Units produced

10000

Units sold

9600

Sales value

$691200

Less:Variable cost of goods sold:

Beginning inventory

0

add:Variable cost of good manufactured

230000

Less:Closing Inventory

9200

Variable cost of goods sold

220800

Gross Margin

470400

Less: variable selling and administrative costs

76800

Contribution margin

393600

Less:Fixed manufacturing overhead

220000

Less: Fixed Selling and administrative costs

118000

Net Operating Income

$55600

Income Statement under Absorption costing:

Particulars

Units produced

10000

Units sold

9600

Sales value

$691200

Less: Cost of goods sold:

Beginning inventory

0

add: cost of goods manufactured

450000

Less: Closing Inventory

18000

cost of goods sold

432000

Gross Margin

259200

variable Selling and administrative

76800

Fixed selling and administrative costs

118000

Net Operating Income

$64400

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