Indirect materials (variable)
30,000
Other variable overhead
90,000
Fixed manufacturing overhead
180,000
Fixed administrative expenses
150,000
Fixed selling expenses
120,000
Variable selling expenses, per unit
40
Direct labor, per unit
80
Direct materials, per unit
20
Required: Compute the dollar amount of ending inventory using:
A.
Absorption costing
B.
Variable costing
ANS:
2. During the most recent year, Boston Corp. had the following data:
Beginning inventory in units
–
Units produced
15,400
Units sold ($125 per unit)
8,200
Variable costs per unit:
Direct materials
$
13
Direct labor
$
16
Variable overhead
$
8
Fixed costs:
Fixed overhead per unit produced
$
23
Fixed selling and administrative
$ 185,000
Required:
A. How many units are in ending inventory?
B. Using absorption costing, calculate the per-unit product cost. What is the value of ending
inventory?
C. Using variable costing, calculate the per-unit product cost. What is the value of ending inventory?
D. Prepare an income statement using absorption costing.
E. Prepare an income statement using variable costing.
units
Direct materials
Variable overhead
Fixed overhead per unit produced
Ending inventory value = $60 x 7,200 =
Direct materials
Direct labor
Total product cost
Ending inventory value = $37 x 7,200 =
3. The variable costing income statement for Jackson Company for 2011 is as follows:
Sales (5,000 units)
$100,000
Variable expenses:
Cost of goods sold
$30,000
Selling (10% of sales)
10,000
40,000
Contribution margin
$ 60,000
Fixed expenses:
Manufacturing overhead
$24,000
Administrative
14,400
38,400
Operating income
$ 21,600
Selected data for 2011 concerning the operations of the company are as follows:
Beginning inventory
-0- units
Units produced
8,000 units
Manufacturing costs:
Direct labor
$3.00 per unit
Direct materials
1.60 per unit
Variable overhead
1.40 per unit
Required: Prepare an absorption costing income statement for 2011.
4. Prepare a segmented income statement for Mario Co. for the coming year, using variable costing.
Leather jackets
Suede jackets
Sales
450,000
542,000
Variable cost of goods sold
134,000
213,000
Direct fixed overhead
29,000
38,000
A sales commission of 2% of sales is paid for each of the two product lines. Direct fixed selling and
administrative expense was estimated to be $32,000 for the leather jackets and $66,000 for the suede
jackets. Common fixed overhead for the factory was estimated to be $83,000 and common selling
and administrative expense was estimated to be $14,000.
Required: Prepare a segmented income statement for Mario Co. for the coming year, using variable
costing.
Sales
$100,000
Less cost of goods sold:
Gross profit
Less operating expenses:
Selling expenses
Administrative expenses
Operating income
5. Mario Co. produces three products: LMC, DMC, KPC. For the coming year they expect to produce
160,000 units. Of these, 65,000 will be LMC, 40,000 will be DMC and 55,000 will be KPC. The
following information was provided for the coming year:
LMC
DMC
KPC
Price
$
550
$
860
$
625
Unit direct materials
250
405
300
Unit direct labor
180
210
205
Unit variable overhead
60
72
55
Unit variable selling expense
45
60
58
Total direct fixed overhead
240,000
425,000
400,000
Common fixed overhead is $984,000 and fixed selling and administrative expenses for Mario Co. is
$881,000 per year.
Required:
A. Calculate the unit variable cost under variable costing.
B. Calculate the unit variable product cost.
C. Prepare a segmented variable-costing income statement for next year.
D. Should Mario Co. keep all product lines?
Variable selling expense
Contribution margin
318,160
Direct fixed overhead
Segment margin
214,160
Common fixed overhead
Operating income
6. Ellie Manufacturing Company produces three products: A, B, and C. The income statement for most
recent year is as follows:
Sales
$200,000
Less: Variable cost
127,000
Contribution margin
$ 73,000
Less fixed cost:
Manufacturing
$20,000
Selling and administrative
14,000
34,000
Operating income
$ 39,000
The sales, contribution margin ratios, and direct fixed expenses for the three types of products are as
follows:
A
B
C
Sales
$60,000
$40,000
$100,000
Contribution margin ratio
35%
30%
40%
Direct fixed expenses of products
$ 8,000
$ 5,000
$4,000
Required: Prepare income statements segmented by products. Include a column for the entire firm in
the statement.
7. Laird Company uses 405 units of a part each year. The cost of placing one order is $5; the cost of
carrying one unit in inventory for a year is $2. Laird currently orders 81 units at a time.
A.
The annual ordering cost of Laird’s current policy is $__________________.
B.
The annual carrying cost of Laird’s current policy is $__________________.
C.
The total cost of Laird’s current policy is $__________________.
D.
What is the EOQ for Laird?
E.
What is the total inventory-related cost at the EOQ?
A
C
Sales
$60,000
$40,000
$100,000
$200,000
Less: Variable expenses
39,000
28,000
60,000
Contribution margin
$21,000
$12,000
$ 40,000
$ 73,000
Less: Direct fixed exp.
17,000
Product margin
$13,000
$ 36,000
$ 56,000
Less: Common expenses
17,000
$ 39,000
8. Simon Company sells 900 units of its deluxe product each year. The cost of setting up for one
production run is $150; the cost of carrying one unit in inventory for a year is $3.
A.
What is the economic order quantity?
B.
What is the annual setup cost of the EOQ policy?
C.
What is the annual carrying cost of the EOQ policy?
D.
What is the total inventory-related cost of the EOQ policy?
D.
Total cost of the EOQ policy = $450 + $450 = $900
9. Simon Company sells 900 units of its deluxe product each year. The cost of setting up for one
production run is $150; the cost of carrying one unit in inventory for a year is $3. Simon currently
produces 100 deluxe units in one production run.
A.
What is the annual setup cost of the current policy?
B.
What is the annual carrying cost of the current policy?
C.
What is the total inventory-related cost of the current policy?
D.
Do you suppose that the current production run is smaller or larger than the EOQ?
Why?
C.
Total cost of the current policy = $1,350 + $150 = $1,500
is higher than the carrying cost.
C.
Total cost of Laird’s current policy = $25 + $81= $106
10. Rudd Company uses 40,000 micro-chips each year in its production of digital cameras. The cost of
placing an order is $75. The cost of holding one unit of inventory for one year is $8. Currently Rudd
places 20 orders of 2,000 units per order.
Required:
A. Compute the annual ordering cost.
B. Compute the annual carrying cost.
C. Compute the total cost of Rudd’s current inventory policy.
D. Compute the economic order quantity.
E. Compute the order cost and the carrying cost for the EOQ.
F. How much money does using the EOQ policy save the company over the policy of purchasing
2,000 micro-chips per order?
11. McKay Company produces curling irons. The plastic handles used to produce the curling irons are
purchased from an outside supplier. Each year, 45,000 handles are used at the rate of 150 handles per
day. Some days as many as 180 handles are used. On average it takes 4 days after an order is placed
for the inventory to arrive at McKay Company.
Required:
A. Calculate the reorder point without safety stock.
B. Calculate the amount of safety stock.
C. Calculate the reorder point with safety stock.
ESSAY
1. What is the difference between absorption-costing income and variable-costing income?
You decide
2. You have just become the controller for Artisan Industries. Artisan produces three different products
and upon review of their internal reports you notice that they have never prepared a segmented income
statement. Explain to the vice president what a segmented income statement consists of and why it
can be useful in decision making.
3. List three problems inventory was meant to solve. How does the JIT producer handle these problems?