Problem 6-23 (60 minutes)
1. a. Absorption costing unit product cost is:
Direct materials …………………………….
$ 3.50
Direct labor ………………………………….
12.00
Variable manufacturing overhead ……..
1.00
Fixed manufacturing overhead
($300,000 ÷ 30,000 units) ……………
10.00
Absorption costing unit product cost ….
$26.50
b. The absorption costing income statement is:
Sales (28,000 units) ……………………………………….
$1,120,000
Cost of goods sold (28,000 units × $26.50 per unit)
742,000
Gross margin ………………………………………………..
378,000
Selling and administrative expenses
($200,000 + 28,000 units × $6.00 per unit) ………
368,000
Net operating income ……………………………………..
$ 10,000
c. The reconciliation is as follows:
Units in ending inventory = Units in beginning inventory + Units
produced – Units sold = 0 units +30,000 units – 28,000 units
= 2,000 units
Manufacturing overhead deferred in (released from) inventory = Fixed
manufacturing overhead in ending inventory – Fixed manufacturing
overhead in beginning inventory = (2,000 units × $10 per unit) – $0
= $20,000
Variable costing net loss ………………………………….
$(10,000)
Add fixed manufacturing overhead cost deferred in
inventory under absorption costing ………………….
20,000
Absorption costing net operating income …………….
$ 10,000
Problem 6-24 (continued)
Problem 6-25 (75 minutes)
1.
Year 1
Year 2
Year 3
Unit sales ………………………………
50,000
40,000
50,000
Sales ……………………………………
$800,000
$ 640,000
$800,000
Variable expenses:
Variable cost of goods sold
@ $2 per unit ……………………
100,000
80,000
100,000
Variable selling and
administrative expenses
@ $1 per unit ……………………
50,000
40,000
50,00
0
Total variable expenses …………….
150,000
120,000
150,000
Contribution margin …………………
650,000
520,000
650,000
Fixed expenses:
Fixed manufacturing overhead …
480,000
480,000
480,000
Fixed selling and administrative
expenses ………………………….
140,000
140,000
140,000
Total fixed expenses ………………..
620,000
620,000
620,000
Net operating income (loss) ………
$ 30,000
$(100,000)
$ 30,000
