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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
Sales (70,000 units x $350/unit) ................................
$24,500,000
Variable expenses
Var. manuf. expense (70,000 units x 130/unit*) ............
$9,100,000
Var. selling and administrative expense ......................
770,000
Total variable expenses .................................................
9,870,000
Contribution margin .........................................................
14,630,000
Fixed expenses
Fixed manufacturing expenses ................................
7,000,000
Fixed selling and administrative expenses ..................
4,250,000
Total fixed expenses.......................................................
11,250,000
Net income .........................................................................
$ 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
Sales (20,000 units x $216/unit) ................................
$4,320,000
Variable expenses
Var. manuf. expense (20,000 units x $54/unit*) ............
$1,080,000
Var. selling and administrative expense ......................
360,000
Total variable expenses .................................................
1,440,000
Contribution margin .........................................................
2,880,000
Fixed expenses
Fixed overhead ................................................................
160,000
Fixed selling and administrative expenses ..................
200,000
Total fixed expenses.......................................................
360,000
Net income .........................................................................
$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
