Ogilvy Company manufactures and sells one product. The following information per

Question

Ogilvy Company manufactures and sells one product. The following information pertains to each of the company's first three years of operations Variable cost per unit: 36 $2,320,000 $ 326,000 Direct materials Fixed costs per vear: Direct labor Fixed manufacturing overhead $ 842,000 Fixed selling and administrative expenses The company does not incur any variable manufacturing overhead costs or variable selling and administrative expenses. During its first year of operations, Ogilvy produced 80,000 units and sold 80,000 units. During its second year of operations, it produced 80,000 units and sold 74,200 units. In its third year, Ogilvy produced 80,000 units and sold 85,800 units. The selling price of the company's product is $80 per unit. Required: 1. Assume the company uses super-variable costing a. Compute the unit product cost for Year 1, Year 2, and Year 3 b. Prepare an income statement for Year 1, Year 2, and Year 3 2. Assume the company uses a variable costing system that assigns $29 of direct labor cost to each unit produced a. Compute the unit product cost for Year 1, Year 2, and Year 3 b. Prepare an income statement for Year 1, Year 2, and Year 3 3. Reconcile the difference between the super-variable costing and variable costing net operating incomes in Years 1, 2, and 3 Complete this question by entering your answers in the tabs below. Req 1AReq 1B Req 2A Req 2B Req 3 Compute the unit product cost for Year 1, Year 2, and Year 3. Assume the company uses super-variable costing Product Cost Year 1 Year 2 Year 3

Explanation / Answer

1.a.Computation of Unit Product Cost Part-1 (b) Unit product Cost Ogilvy Company Year-1 $36.00 Super- Variable Costing Incoem Statement Year-2 $36.00 Year-1 Year-2 Year-3 Year-3 $36.00 Unit Sold 80000 74200 85800 Sales $6,400,000.00 $5,936,000.00 $6,864,000.00 Less: Variable cost of Goods Sold $2,880,000.00 $2,671,200.00 $3,088,800.00 Contribution margin $3,520,000.00 $3,264,800.00 $3,775,200.00 Fixed Expense Fixed Manufacturing Overhead $842,000.00 $842,000.00 $842,000.00 Fixed Selling and Admin Expense $326,000.00 $326,000.00 $326,000.00 Direct Labour Cost $2,320,000.00 $2,320,000.00 $2,320,000.00 Total Fixed expense $3,488,000.00 $3,488,000.00 $3,488,000.00 Net operating Income/(Loss) $32,000.00 -$223,200.00 $287,200.00 2(a)Computation of Unit Product Cost Part-2(b) Unit product Cost Ogilvy Company Year-1 $36+$29 $65.00 Variable Costing Incoem Statement Year-2 $36+$29 $65.00 Year-1 Year-2 Year-3 Year-3 $36+$29 $65.00 Unit Sold 80000 74200 85800 Sales $6,400,000.00 $5,936,000.00 $6,864,000.00 Less: Variable cost of Goods Sold $5,200,000.00 $4,823,000.00 $5,577,000.00 Contribution margin $1,200,000.00 $1,113,000.00 $1,287,000.00 Fixed Expense Fixed Manufacturing Overhead $842,000.00 $842,000.00 $842,000.00 Fixed Selling and Admin Expense $326,000.00 $326,000.00 $326,000.00 Total Fixed expense $1,168,000.00 $1,168,000.00 $1,168,000.00 Net operating Income/(Loss) $32,000.00 -$55,000.00 $119,000.00 Part-3 Ogilvy Company Variable Costing Incoem Statement Year-1 Year-2 Year-3 Super Variable Costing Net Operating Income (Loss) $32,000.00 -$223,200.00 $287,200.00 Add: Direct Labour deferred in inventory under Variable Costing $168,200.00 Less: Direct Albour released from inventory under Variable Costing -$168,200.00 Variable Costing net Operating Income (Loss) $32,000.00 -$55,000.00 $119,000.00

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