9-16. Nascar Motors assembles and sells motor vehicles and uses standard costing
ID: 2593249 • Letter: 9
Question
9-16.
Nascar Motors assembles and sells motor vehicles and uses standard costing. Actual data relating to April and May 2014 are as follows:
3000
The selling price per vehicle is $22,000. The budgeted level of production used to calculate the budgeted fixed manufacturing cost per unit is 500 units. There are no price, efficiency, or spending variances. Any production-volume variance is written off to cost of goods sold in the month in which it occurs.
Requirements
1.Prepare April and May 2014 income statements for Nascar Motors under (a) variable costing and (b) absorption costing.
2.Prepare a numerical reconciliation and explanation of the difference between operating income for each month under variable costing and absorption costing.
April May Unit data Beginning inventory 0 100 Production 500 475 Sales 400 525 Variable costs Manufacturing cost per unit produced $10,000 $10,000 Operating (marketing) cost per unit sold 30003000
Fixed costs Manufacturing costs $2,250,000 $2,250,000 Operating (marketing) costs 500000 500000Explanation / Answer
Income statement under absorption costing Units April Units May Sales 400 8800000 525 11550000 Less : Cost of goods sold beginning Inventory 0 0 100 1450000 Cost of goods manufactured 500 7250000 475 6887500 Less : Ending Inventory 100 1450000 50 725000 Add : Unfavourable volume variance 112500 Cost of goods sold 5800000 7725000 Gross Margin 3000000 3825000 Less : Operating(marketing) Cost Variable 1200000 1575000 Fixed 500000 500000 Total Operating(marketing) costs 1700000 2075000 Operating profit/Net Income 1300000 1750000 Income statement under variable costing Units April Units May Sales 400 8800000 525 11550000 Less : Cost of goods sold beginning Inventory 0 0 100 1000000 Cost of goods manufactured 500 5000000 475 4750000 Less : Ending Inventory 100 1000000 50 500000 Variable Cost of goods sold 4000000 5250000 Manufacturing Margin 4800000 6300000 Less : Variable Operating(marketing) Cost 1200000 1575000 Contribution Margin 3600000 4725000 Less : Fixed cost Fixed Manufacturing cost 2250000 2250000 Fixed operating(marketing)costs 500000 500000 Total fixed costs 2750000 2750000 Operating profit/Net Income 850000 1975000 Reconciation and explanation for difference in profit of above two method Profit as per Absorption costing 1300000 1750000 Add/less: difference in Valuation of Inventory -450000 225000 Profit as per variable costing 850000 1975000 The reason for difference between the two profit figures, is the inclusion of Fixed manufacturing costs under absorption costing. Under variable costing, the Inventory is valued at variable cost only
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