Solutions Manual, Appendix 5A 69
Exercise 5A-3 (20 minutes)
1 a. Under super-variable costing, the unit product cost for both years
includes direct materials of $12.
1 b.
Year 1
Year 2
Sales …………………………………………………
$2,000,000
$3,000,000
Variable cost of goods sold (@ $12 per unit)
480,000
720,000
Contribution margin ………………………………
1,520,000
2,280,000
Fixed expenses:
Direct labor ………………………………………
500,000
500,000
Fixed manufacturing overhead ………………
450,000
450,000
Fixed selling and administrative …………….
180,000
180,000
Total fixed expenses ……………………………..
1,130,000
1,130,000
Net operating income …………………………...
$ 390,000
$1,150,000
2 a. The unit product costs under variable costing:
Year 1
Year 2
$12
$12
*10
*10
Variable costing unit product cost ……….
$22
$22
* $500,000 ÷ 50,000 units = $10 per unit.
70 Managerial Accounting for Managers, 4th Edition
Exercise 5A-3 (continued)
2 b. The variable costing income statements would be:
Year 1
Year 2
Sales …………………………………………………
$2,000,000
$3,000,000
Variable cost of goods sold (@ $22 per unit)
880,000
1,320,000
Contribution margin ………………………………
1,120,000
1,680,000
Fixed expenses:
Fixed manufacturing overhead ………………
450,000
450,000
Fixed selling and administrative …………….
180,000
180,000
Total fixed expenses ……………………………..
630,000
630,000
Net operating income …………………………...
$ 490,000
$1,050,000
3. The net operating incomes are reconciled as follows:
Year 1
Year 2
Units in beginning inventory ……………………
0
10,000
+ Units produced …………………………………
50,000
50,000
− Units sold ………………………………………..
40,000
60,000
= Units in ending inventory …………………….
10,000
0
Year 1
Year 2
Direct labor cost in ending inventory
(10,000 units × $10 per unit) ……………….
$100,000
$ 0
− Direct labor cost in beginning inventory
(10,000 units × $10 per unit) ……………….
100,000
= Direct labor cost deferred in (released
from) inventory………………………………….
$100,000
$(100,000)
Year 1
Year 2
Super-variable costing net operating income
$390,000
$1,150,000
Add: Direct labor deferred in inventory
under variable costing …………………………
100,000
Deduct: Direct labor released from
inventory under variable costing ……………
(100,000)
Variable costing net operating income ………
$490,000
$1,050,000
Solutions Manual, Appendix 5A 71
Problem 5A-4 (30 minutes)
1 a. and b. The unit product cost for all three years under super-variable costing would include direct
materials of $16 per unit. The super-variable costing income statements appear below:
Year 1
Year 2
Year 3
Sales ………………………………………………………………
$2,700,000
$2,475,000
$2,925,000
Variable cost of goods sold (@ $16 per unit) …………..
960,000
880,000
1,040,000
Contribution margin …………………………………………..
1,740,000
1,595,000
1,885,000
Fixed expenses:
Direct labor ……………………………………………………
540,000
540,000
540,000
Fixed manufacturing overhead …………………………..
822,000
822,000
822,000
Fixed selling and administrative ………………………….
370,000
370,000
370,000
Total fixed expenses ………………………………………….
1,732,000
1,732,000
1,732,000
Net operating income (loss) ………………………………..
$ 8,000
$ (137,000)
$ 153,000
72 Managerial Accounting for Managers, 4th Edition
Problem 5A-4 (continued)
2 a. The unit product costs under variable costing:
Year 1
Year 2
Year 3
Direct materials …………………………………….
$16
$16
$16
Direct labor* ………………………………………..
9
9
9
Variable costing unit product cost ……………..
$25
$25
$25
2 b. The variable costing income statements appears below:
Year 1
Year 2
Year 3
Sales ………………………………………………………………
$2,700,000
$2,475,000
$2,925,000
Variable cost of goods sold (@ $25 per unit) …………..
1,500,000
1,375,000
1,625,000
Contribution margin …………………………………………..
1,200,000
1,100,000
1,300,000
Fixed expenses:
Fixed manufacturing overhead …………………………..
822,000
822,000
822,000
Fixed selling and administrative ………………………….
370,000
370,000
370,000
Total fixed expenses ………………………………………….
1,192,000
1,192,000
1,192,000
Net operating income (loss) ………………………………..
$ 8,000
$ (92,000)
$ 108,000
Solutions Manual, Appendix 5A 73
Problem 5A-4 (continued)
3. The net operating incomes are reconciled as follows:
Year 1
Year 2
Year 3
Units in beginning inventory ……………………
0
0
5,000
+ Units produced …………………………………
60,000
60,000
60,000
− Units sold ………………………………………..
60,000
55,000
65,000
= Units in ending inventory …………………….
0
5,000
0
Year 1
Year 2
Year 3
Direct labor cost in ending inventory (5,000
units × $9 per unit) …………………………...
$ 0
$45,000
$ 0
− Direct labor cost in beginning inventory
(5,000 units × $9 per unit) …………………..
0
45,000
= Direct labor cost deferred in (released
from) inventory………………………………….
$ 0
$45,000
$(45,000)
Year 1
Year 2
Year 3
Super-variable costing net operating income
(loss) ………………………………………………
$8,000
$(137,000)
$153,000
Add: Direct labor deferred in inventory
under variable costing …………………………
45,000
Deduct: Direct labor released from
inventory under variable costing ……………
(45,000)
Variable costing net operating income (loss)
$8,000
$ (92,000)
$108,000
74 Managerial Accounting for Managers, 4th Edition
Problem 5A-5 (45 minutes)
1. a. The unit product cost under super-variable costing would include
direct materials of $19.
b. The super-variable costing income statement would be:
Sales (18,000 units × $55 per unit) …………
$990,000
Variable cost of goods sold
(18,000 units × $19 per unit) ……………
342,000
Contribution margin …………………………….
648,000
Fixed expenses:
Direct labor ……………………………………..
$250,000
Fixed manufacturing overhead …………….
300,000
Fixed selling and administrative expense ..
90,000
640,000
Net operating income …………………………..
$ 8,000
2. a. The unit product cost under variable costing would be:
Direct materials……………………………………………………..
$19.00
Direct labor ($250,000 ÷ 20,000 units) ………………………
12.50
Variable costing unit product cost ………………………………
$31.50
b. The variable costing income statement would be:
Sales (18,000 units × $55 per unit) …………
$990,000
Variable cost of goods sold
(18,000 units × $31.50 per unit)………..
567,000
Contribution margin …………………………….
423,000
Fixed expenses:
Fixed manufacturing overhead …………….
$300,000
Fixed selling and administrative expense ..
90,000
390,000
Net operating income …………………………..
$ 33,000
Solutions Manual, Appendix 5A 75
Problem 5A-5 (continued)
3. a. The unit product cost under absorption costing would be:
Direct materials……………………………………………………..
$19.00
Direct labor ($250,000 ÷ 20,000 units) ………………………
12.50
Fixed manufacturing overhead ($300,000 ÷ 20,000 units)
15.00
Absorption costing unit product cost ………………………….
$46.50
b. The absorption costing income statement would be:
Sales (18,000 units × $55 per unit) ………………………
$990,000
Cost of goods sold (18,000 units × $46.50 per unit)…
837,000
Gross margin …………………………………………………..
153,000
Selling and administrative expenses ……………………..
90,000
Net operating income ………………………………………..
$ 63,000
Units in ending inventory = Units in beginning inventory + Units
= 2,000 units
Super-variable costing net operating income …………
$ 8,000
Add direct labor cost deferred in inventory under
variable costing ……………………………………………
25,000
Variable costing net operating income ………………….
$33,000
Direct labor and fixed manufacturing overhead cost deferred in
76 Managerial Accounting for Managers, 4th Edition
Problem 5A-5 (continued)
Super-variable costing net operating income …………
$8,000
Add direct labor and fixed manufacturing overhead
cost deferred in inventory under absorption
costing ……………………………………………………….
55,000
Absorption costing net operating income ……………..
$63,000