Managerial Accounting 1B Ch19

Managerial Accounting 1B

Financial and Managerial Accounting

Chapter 19

1.

Exercise 19-1 Income reporting under absorption costing and variable costing L.O. P2

Adams Company, a manufacturer of in-home decorative fountains, began operations on September 1 of the current year. Its cost and sales information for this year follows.

   

 

 

   

  Production costs

     

    

 Direct materials

$ 40

 

 per unit

   

  Direct labor

$

60

  per unit

     Overhead costs for the year

     

       

  Variable overhead

$

3,000

,000

 

       

  Fixed overhead

$

7,000,000

 

  Nonproduction costs for the year

     

     Variable selling and administrative

$

7

70,000

 

     Fixed selling and administrative

$

4,250,000

 

  Production and sales for the year

     

     Units produced

 

100,000

 units

     Units sold

 

70,000

 units

   

  Sales

price per unit

$

350

 per unit    1.

Prepare an income statement for the company using absorption costing. (Input all amounts as positive values except net loss which should be indicated with a minus sign. Omit the “$” sign in your response.)

     

2.

Prepare an income statement for the company using variable costing. (Input all amounts as positive values except net loss which should be indicated with a minus sign. Omit the “$” sign in your response.)

   

3.

Under what circumstance(s) is reported income identical under both absorption costing and variable costing?

    

Exercise 19-4 Income reporting under absorption costing and variable costing L.O. P2

[The following information applies to the questions displayed below.]

Woodson Company, a producer of solid oak tables, reports the following data from its current year operations, which is its second year of business.

  

       

price per unit

$

 per unit

 

 units

 

 units

 

 units

     

$

 

 

 

 

 

$

 

     

$ 40  per unit

$

 per unit

     

$

 

$

 

     

$

 

 

 

  Sales

320

  Units produced this year

115,000

  Units sold this year

118,000

  Units in beginning-year inventory

3,000

  Beginning inventory costs

       Variable (3,000 units × $135)

405,000

       Fixed (3,000 units × $80)

240,000

       Total

645,000

  Production costs this year

  

   

  Direct materials

       Direct labor

62

       Overhead costs this year

           Variable overhead

3,220,000

           Fixed overhead

7,400,000

  Nonproduction costs this year

       Variable selling and administrative

1,416,000

       Fixed selling and administrative

4,600,000

   

 2.
Exercise 19-4 Part 1

1.

Prepare the current year income statement for the company using absorption costing. (Input all amounts as positive values except net loss which should be indicated with a minus sign. Leave no cells blank – be certain to enter “0” wherever required. Omit the “$” sign in your response.)

  

3.Exercise 19-4 Part 2

2.

Prepare the current year income statement for the company using variable costing. (Input all amounts as positive values except net loss which should be indicated with a minus sign. Leave no cells blank – be certain to enter “0” wherever required. Omit the “$” sign in your response.)

  

4.Exercise 19-6 Converting variable costing income to absorption costing income L.O. P2, P4

Lyon Furnaces prepares the income statement under variable costing for its managerial reports, and it prepares the income statement under absorption costing for external reporting. For its first month of operations, 375 furnaces were produced and 225 were sold; this left 150 furnaces in ending inventory. The income statement information under variable costing follows.

    

     

$

 

 

 

 

cost

 

 

 

$

 

  Sales (225 × $1,600)

3

60,000

 

  Variable production cost (225 × $625)

140,625  

  Variable selling and administrative expenses (225 × $65)

14,625  

  Contribution margin

204,75

0  

  Fixed overhead

56,250  

  Fixed selling and administrative expense

75,000  

  Net income

73,500  

  

1.

Prepare this company’s income statement for its first month of operations under absorption costing.(Input all amounts as positive values except net loss which should be indicated with a minus sign. Omit the “$” sign in your response.)

    5.

Exercise 19-9 Contribution margin format income statement L.O. P3

Polarix is a retailer of ATVs (all terrain vehicles) and accessories. An income statement for its Consumer ATV Department for the current year follows. ATVs sell, on average, for $3,800. Variable selling expenses are $270 each. The remaining selling expenses are fixed. Administrative expenses are 40% variable and 60% fixed. The company does not manufacture its own ATVs; it purchases them from a supplier for $1,830 each.

  

  Sales     $

     

     

POLARIX Income Statement—Consumer ATV Department For Year Ended December 21, 2011

646,000  

  Cost of goods sold

311,100  

   

  Gross margin

 

334,900  

  Operating expenses

       

      Selling expenses

$

135,000  

   

      Administrative expenses

 

59,500  

 

194,500  

    Net income     $

140,400  

     

  

Required:

 

1.

Prepare an income statement for this current year using the contribution margin format. (Input all amounts as positive values except net loss which should be indicated with a minus sign. Omit the “$” sign in your response.)

     

2.

For each ATV sold during this year, what is the contribution toward covering fixed expenses and that toward earning income? (Omit the “$” sign in your response.)

 

  

  Contribution margin per ATV

6.

Exercise 19-11 Absorption costing and over-production L.O. C2

Rourke Inc. reports the following annual cost data for its single product.

  

       

 

 units

$

 per unit

$

 

$

 per unit

$

 per unit

  Fixed overhead $

  Normal production and sales level

60,000

  Sales price

56.00

  Direct materials

9.00

  Direct labor

6.50

  Variable overhead

11.00

720,000

 in total

   

If Rourke increases its production to 80,000 units, while sales remain at the current 60,000 unit level, by how much would the company’s gross margin increase or decrease under absorption costing? Assume the company has idle capacity to double current production. (Omit the “$” sign in your response.)

      Gross margin    

7.Problem 19-1A Variable costing income statement and conversion to absorption costing income L.O. P2, P4

Torres Company began operations this year. During this first year, the company produced 100,000 units and sold 80,000 units. The absorption costing income statement for its first year of operations follows.

  

  

    $

  Cost of goods sold        

$

   

 

   

     

  3,000,000      

 

   

     

     

     

  Gross margin      

     

     

  Net income     $

       

  Sales (80,000 units × $50 per unit)

4,000,000  

     Beginning inventory

0  

     Cost of goods manufactured (100,000 units × $30 per unit)

3,000,000  

     Cost of good available for sale

     Ending inventory (20,000 × $30)

600,000  

     Cost of goods sold

2,400,000  

1,600,000  

  Selling and administrative expenses

530,000  

1,070,000  

  

Additional Information

   

a.

Selling and administrative expenses consist of $350,000 in annual fixed expenses and $2.25 per unit in variable selling and administrative expenses.

b.

The company’s product cost of $30 per unit is computed as follows.

  

  

  Direct materials $

 per unit

  Direct labor $

 per unit

  Variable overhead $

 per unit

$

 per unit

5
14
2

  Fixed overhead ($900,000 / 100,000 units)

9

   Required:  

1.

Prepare an income statement for the company under variable costing. (Input all amounts as positive values except net loss which should be indicated with a minus sign. Omit the “$” sign in your response.)

    

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