EXERCISES
Exercise 19-1 (15 minutes)
Part 1
Cost per unit of finished goods using absorption costing:
Direct materials ……………………………………………………………………….
$15 per unit
Direct labor ………………………………………………………………………….….
16 per unit
Variable overhead ($80,000/20,000 units) ………………………………….
4 per unit
Fixed overhead ($160,000/20,000 units) …………………………………….
8 per unit
Total cost per unit ………………………………………………………………..….
$43 per unit
Exercise 19-2 (15 minutes)
Part 1
Cost per unit of finished goods using variable costing:
Direct materials ……………………………………………………………………….
$15 per unit
Direct labor ………………………………………………………………………….….
16 per unit
Variable overhead ($80,000/20,000 units) ………………………………….
4 per unit
Total cost per unit ………………………………………………………………..….
$35 per unit
Exercise 19–2 (continued)
Part 2
Cost of ending finished goods inventory using variable costing:
Exercise 19-3 (25 minutes)
Part 1
SIMS COMPANY
Variable Costing Income Statement
$24,500,000
$9,100,000
770,000
9,870,000
14,630,000
7,000,000
4,250,000
11,250,000
$ 3,380,000
* Direct materials ………………….……….
$ 40 per unit
Direct labor ……………………….….
60 per unit
Variable overhead ………………..…………
30 per unit
Total variable manuf. cost …………………..
$130 per unit
Exercise 19–3 (continued)
Part 2
SIMS COMPANY
Absorption Costing Income Statement
Sales (70,000 units x $350 per unit) ……………………………………….…
$24,500,000
Cost of goods sold (70,000 units x $200 per unit*) ………………….…
14,000,000
Gross profit ………………………………………………………………………….…
10,500,000
Selling and administrative costs ($770,000 + $4,250,000) ……….…
5,020,000
Net income ………………………………………………………………………………
$ 5,480,000
*Direct materials ………………………………………………
$ 40 per unit
Direct labor …………………………………………………….
60 per unit
Variable overhead ($3,000,000/100,000 units) …….
30 per unit
Fixed overhead ($7,000,000/100,000 units) …………
70 per unit
Total absorption cost per unit …………………………..
$200 per unit
Part 3
Absorption costing and variable costing income will be identical if production
equals sales and there is no beginning finished goods inventory.
Exercise 19-4 (15 minutes)
Part 1
KENZI KAYAKING
Variable Costing Income Statement
Sales (800 x $1,050) ……………………………………………….
$840,000
Variable expenses
Variable production costs (800 x $400) ………………..
$320,000
Variable selling and administrative expenses ……...
75,000
Total variable expenses ……………………………………...
395,000
Contribution margin …………………………..………………….
445,000
Fixed expenses
Fixed manufacturing costs ………………………………….
105,000
Fixed selling and administrative expenses …………..
155,000
Total fixed expenses…………………………..……………….
260,000
Net income …………………………………………………………….
$185,000
Exercise 19–4 (continued)
Part 2
The absorption costing income is $25,000 higher than the variable costing
Exercise 19-5 (25 minutes)
a)
REY COMPANY
Absorption Costing Income Statement
Sales (20,000 units x $216 per unit) ……………………………………….…
$4,320,000
Cost of goods sold (20,000 units x $62 per unit*) ………………………
1,240,000
Gross margin ………………………………………………………………………..…
3,080,000
Selling and administrative costs [$200,000 + (20,000 x $18)] …..…
560,000
Net income ………………………………………………………………………………
$2,520,000
*Direct materials ………………………………………………
$ 20 per unit
Direct labor …………………………………………………….
28 per unit
Variable overhead ……………………………………………
6 per unit
Fixed overhead ($160,000/20,000 units) ……………..
8 per unit
Total absorption cost per unit …………………………..
$62 per unit
b)
REY COMPANY
Variable Costing Income Statement
$4,320,000
$1,080,000
360,000
1,440,000
2,880,000
160,000
Fixed selling and administrative expenses ………..…….
200,000
360,000
$2,520,000
* Direct materials ………………….……….
$ 20 per unit
Direct labor ……………………….….
28 per unit
Variable overhead ………………..…………
6 per unit
Total variable manuf. cost …………………..
$54 per unit
Exercise 19-6 (15 minutes)
Part 1
HAYEK BIKES
Absorption Costing Income Statement
Sales (225 units x $1,600 per unit) …………………………………………..………..
$360,000
Cost of goods sold (225 units x $775 per unit*) ………………………..…
174,375
Gross profit ……………………………………………………………………………………
185,625
Selling and administrative expense ($14,625 + $75,000) …………..………..
89,625
Net income ……………………………………………………………………………..…….
$ 96,000
* Production cost per unit:
Variable production costs …………………………..….….
$625
Fixed overhead ($56,250 / 375 units) ………………..….
150
Total production costs ……………………………………….
$775
Part 2
The absorption costing income is $22,500 ($96,000 – $73,500) higher than
the variable costing income. This difference is equal to 150 units in ending
inventory that each have $150 ($56,250 fixed overhead ÷ 375 units
produced) of fixed overhead attached to them; variable costing expenses
this cost.
Exercise 19-7 (25 minutes)
Part 1
OAK MART COMPANY
Variable Costing Income Statement
Sales (118,000 units x $320 per unit) ………………..…….
$37,760,000
Variable expenses
Variable production costs* …………………………….…….
$15,355,000
Variable selling and administrative expenses ……….
1,416,000
Total variable expenses ……………………………………….
16,771,000
Contribution margin …………………………..………………….
20,989,000
Fixed expenses
Fixed manufacturing costs …………………………….…….
7,400,000
Fixed selling and administrative expenses ……..…….
4,600,000
Total fixed expenses…………………………..………….…….
12,000,000
Net income ……………………………………………………….
$ 8,989,000
*Beginning variable finished goods ……………………….
$ 405,000
Variable cost of goods manufactured
Direct materials ($40 x 115,000) …………………..………
4,600,000
Direct labor ($62 x 115,000) …………………………..
7,130,000
Variable overhead ……………………………………………….
3,220,000
Total variable costs available …………………………..
15,355,000
Less ending finished goods ………………………..…
0
Variable production costs of goods sold ……..……….
$15,355,000
Exercise 19-7 (concluded)
Part 2
OAK MART COMPANY
Absorption Costing Income Statement
Sales (118,000 units x $320 per unit) ………………..…….
$37,760,000
Cost of goods sold
Beginning finished goods …………………………………….
$ 645,000
Cost of goods manufactured *………………………..…
22,350,000
Goods available for sale…………………………..…….…….
22,995,000
Less ending finished goods **………………………..…
0
Cost of goods sold …………………………..………………….
22,995,000
Gross margin …………………………………………………..…..
14,765,000
Selling and administrative expenses *** ………………….
6,016,000
Net income ……………………………………………………….
$ 8,749,000
* Direct materials ($40 x 115,000) ………
$ 4,600,000
Direct labor ($62 x 115,000)…………….
7,130,000
Variable overhead ………………………….
3,220,000
Fixed overhead ……………………………..
7,400,000
Total manufacturing costs ……………..
$22,350,000
**Beginning finished goods inventory .
3,000 units
Add units produced ……………………….
115,000 units
Less units sold ……………………………..
(118,000 units)
Ending finished goods inventory ……
0 units
***$1,416,000 + $4,600,000 = $6,016,000
Exercise 19-8 (20 minutes)
Part 1
POLARIX
Income Statement—Consumer ATV Department
For Year Ended December 31, 2015
Sales ………………………………………………………………………………
$646,000
Variable expenses
Cost of goods sold (170 ATVs* × $1,830 per ATV) …….……
$311,100
Selling expenses (170 ATVs × $270 per ATV) …………………
45,900
Administrative expenses (40% × $59,500) ………………..……
23,800
380,800
Contribution margin …………………………..……………………..……
265,200
Fixed expenses
Selling expenses [$135,000 – (170 ATVs × $270 per ATV)]
89,100
Administrative expenses (60% × $59,500) ………………..……
35,700
124,800
Net income ………………………………………………………………..……
$140,400
*$646,000 sales ÷ $3,800 sales price per unit = 170 ATVs.
Exercise 19–8 (concluded)
Part 2
The company sold 170 ATVs and its contribution margin totals $265,200 for
the year. Consequently, the contribution of each ATV toward covering fixed
Exercise 19–9 (concluded)
b.
COOL SKY
Absorption Costing Income Statement
Sales (36,000 units x $140 per unit) ……………………………………….….
$5,040,000
Cost of goods sold (36,000 units x $102 per unit) ………………….….
3,672,000
Gross profit ………………………………………………………………………….….
1,368,000
Selling and administrative expenses* ……………………………………….
501,000
Net income …………………………………………………………………………..….
$ 867,000
*Variable ($11 x 36,000) …………………………..………..
$396,000
Fixed……………………………………………………………..
105,000
Total ……………………………………………………………..
$501,000
Part 2
a. Cost per unit using variable costing
Direct materials ………………………………………………………………..……..
$60 per unit
Direct labor ……………………………………………………………………………..
22 per unit
Variable overhead ……………………………………………………….…………..
8 per unit
Total cost per unit …………………………..………………………………..……..
$90 per unit
b.
COOL SKY
Variable Costing Income Statement
Sales (36,000 units x $140 per unit) …………………..……
$5,040,000
Variable expenses
Variable production costs*……………………………………
$3,240,000
Variable selling and administrative expenses** ..……
396,000
Total variable expenses…………………………………..……
3,636,000
Contribution margin ………………………………………….……
1,404,000
Fixed expenses
Fixed manufacturing costs ……………………………..……
528,000
Fixed selling and administrative expenses ……………
105,000
Total fixed expenses ……………………………………….……
633,000
Net income …………………………..…………………………..
$ 771,000
* 36,000 units x $90 per unit …………………..
$3,240,000
**36,000 units x $11 per unit ……………………
$ 396,000