Problem 5-25 (continued)
2.
a.
Year 1
Year 2
Year 3
Variable manufacturing cost ………….
$ 4
$ 4
$ 4
Fixed manufacturing cost:
$600,000 ÷ 50,000 units ……………
12
$600,000 ÷ 60,000 units ……………
10
$600,000 ÷ 40,000 units ……………
15
Absorption costing unit product cost .
$16
$14
$19
b.
Variable costing net operating
income (loss) ………………………….
$30,000
$(110,000)
$ 30,000
Add (deduct) fixed manufacturing
overhead cost deferred in
(released from) inventory from
Year 2 to Year 3 under absorption
costing (20,000 units × $10 per
unit) ……………………………………..
200,000
(200,000)
Add fixed manufacturing overhead
cost deferred in inventory from
Year 3 to the future under
absorption costing (10,000 units ×
$15 per unit) …………………………..
150,000
Absorption costing net operating
income (loss) ………………………….
$30,000
$ 90,000
$(20,000)
4. The fixed manufacturing overhead cost deferred in inventory from Year
2 was charged against Year 3 operations, as shown in the reconciliation
in (2b). This added charge against Year 3 operations was offset
somewhat by the fact that part of Year 3’s fixed manufacturing overhead
costs was deferred in inventory to future years [again see (2b)]. Overall,
Problem 5-26 (45 minutes)
1. The segmented income statement follows:
Total
Company
Wheat
Cereal
Pancake
Mix
Flour
Sales …………………………..
$600,000
$200,000
$300,000
$100,000
Variable expenses:
Materials, labor & other …
204,000
60,000
126,000
18,000
Sales commissions ……….
60,000
20,000
30,000
10,000
Total variable expenses ……
264,000
80,000
156,000
28,000
Contribution margin ………..
336,000
120,000
144,000
72,000
Traceable fixed expenses:
Advertising …………………
123,000
48,000
60,000
15,000
Salaries ……………………..
66,000
34,000
21,000
11,000
Equipment depreciation* .
30,000
12,000
15,000
3,000
Warehouse rent** ……….
12,000
4,000
7,000
1,000
Total traceable fixed
expenses ……………………
231,000
98,000
103,000
30,000
Product line segment
margin ………………………
105,000
$ 22,000
$ 41,000
$ 42,000
Common fixed expenses:
General administration ….
90,000
Net operating income ……..
$ 15,000
*
$30,000 × 40%, 50%, and 10% respectively
**
$0.50 per square foot × 8,000 square feet, 14,000 square feet, and
2,000 square feet respectively
