CHAPTER 20 Variable Costing for Management Analysis
Prob. 20–1B (FIN MAN); Prob. 5–1B (MAN)
1.
Sales $2,150,000
Cost of goods sold:
2.
Sales $2,150,000
Variable cost of goods sold:
3. The income from operations reported under absorption costing exceeds the income
from operations reported under variable costing by $48,000 ($330,000 – $282,000).
YOSAN INC.
Variable Costing Income Statement
For the Month Ended July 31, 2014
YOSAN INC.
Absorption Costing Income Statement
For the Month Ended July 31, 2014
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CHAPTER 20 Variable Costing for Management Analysis
Prob. 20–2B (FIN MAN); Prob. 5–2B (MAN)
1.
Sales (320,000 units) $25,600,000
Cost of goods sold:
2.
Sales (320,000 units) $25,600,000
Variable cost of goods sold:
3. $1,800,000. The operating loss from temporarily closing the portion of the plant
4. Production of A.V. lotion should be continued. Temporary suspension of
production would result in an operating loss of $1,800,000 [from (3) above],
SMOOTH SKIN CARE PRODUCTS INC.
Estimated Income Statement—Absorption Costing—Aloe Vera Hand Lotion
For the Month Ending February 28, 2014
For the Month Ending February 28, 2014
Estimated Income Statement—Variable Costing—Aloe Vera Hand Lotion
SMOOTH SKIN CARE PRODUCTS INC.
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CHAPTER 20 Variable Costing for Management Analysis
Prob. 20–3B (FIN MAN); Prob. 5–3B (MAN)
1. a.
Sales $104,000
Cost of goods sold:
b.
Sales $104,000
2. a.
Sales $104,000
Variable cost of goods sold:
For the Month Ended January 31, 2014
HEAD GEAR INC.
Absorption Costing Income Statement
For the Month Ended February 28, 2014
Variable Costing Income Statement
HEAD GEAR INC.
Absorption Costing Income Statement
For the Month Ended January 31, 2014
HEAD GEAR INC.
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CHAPTER 20 Variable Costing for Management Analysis
Prob. 20–3B (FIN MAN); Prob. 5–3B (MAN) (Concluded)
2. b.
Sales $104,000
Variable cost of goods sold:
3. a. For January, the income from operations reported under absorption costing
exceeds the income from operations reported under variable costing by
b. For February, the income from operations reported under absorption costing
4. Head Gear Inc. was equally profitable in January and in February under the variable
costing concept. Sales and the variable cost per unit were the same for both January
and February. The difference in income reported under the absorption costing
HEAD GEAR INC.
Variable Costing Income Statement
For the Month Ended February 28, 2014
20-38
CHAPTER 20 Variable Costing for Management Analysis
Prob. 20–4B (FIN MAN); Prob. 5–4B (MAN)
1.
Variable
Variable Cost Selling
of Goods Sold Expenses Contribution
Contribution as a Percent as a Percent Margin
Salesperson Margin of Sales of Sales Ratio
Asarenka $157,500 45.0% 19.0% 36.0%
2. Crowell has the highest contribution margin and contribution margin ratio for
the year. This is because of two factors. First, Crowell had the smallest variable
3. Other factors that should be considered in evaluating the performance of
PACHEC INC.
Salespersons’ Analysis
For the Year Ended June 30, 2014
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CHAPTER 20 Variable Costing for Management Analysis
Prob. 20–5B (FIN MAN); Prob. 5–5B (MAN)
1.
S M L Total
Sales $990,000 $1,087,500 $945,000 $3,022,500
2. Annual income from operations would be reduced below its present level by
$89,400 if Size M were to be discontinued (Proposal 2), as indicated below.
Contribution margin for Size M $260,250
KIMBRELL, INC.
For the Year Ended January 31, 2015
Contribution Margin by Size Segment
Size
20-40
CHAPTER 20 Variable Costing for Management Analysis
Prob. 20–5B (FIN MAN); Prob. 5–5B (MAN) (Concluded)
3.
S L Total
Sales $2,277,000 $945,000 $3,222,000
4. $88,120. A comparison of the amount of income from operations under
present conditions, as indicated in (1), and under Proposal 3, as indicated in
(3), suggests an increase of $88,120 if Proposal 3 is accepted, as illustrated
below.
Income from operations, Proposal 3 $106,820
Size
KIMBRELL, INC.
Contribution Margin—Proposal 3
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CHAPTER 20 Variable Costing for Management Analysis
Prob. 20–6B (FIN MAN); Prob. 5–6B (MAN)
1.
Planned contribution margin $540,000
Effect of change in sales:
2. No, the president is not correct in saying that the variable cost of goods sold got
out of control in 2014. The majority of the increase in the variable cost of goods
sold was due to the variable cost quantity factor. Specifically, the increase of
$6.00 for selling and administrative expenses does raise concern. This increase
may have been caused by additional selling expenses associated with the increased
sales. The increase in selling and administrative expenses also could have been
MATHEWS COMPANY
Contribution Margin Analysis
For the Year Ended December 31, 2014
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CHAPTER 20 Variable Costing for Management Analysis
CP 20–1 (FIN MAN); CP 5–1 (MAN)
Aston Melon has performed the task requested by the division manager. However,
Aston Melon has not exercised good judgment, to the point of bordering on
unethical behavior. Aston Melon should question the wisdom of manipulating
the amount of inventory solely for purposes of meeting numerical profit targets.
CASES & PROJECTS
CHAPTER 20 Variable Costing for Management Analysis
CP 20–2 (FIN MAN); CP 5–2 (MAN)
1. Absorption costing is required under generally accepted accounting principles.
Under this approach, the fixed manufacturing costs are allocated to sold and
inventoried units. Thus, if production exceeds sales, a portion of the fixed
2. Gordon is incorrect in implying that nothing can be done because of generally
accepted accounting principles (GAAP). GAAP is required for external financial
reporting. However, the income reports used to guide management may be
20-44
CP 20–3 (FIN MAN); CP 5–3 (MAN)
Martin is earning more contribution margin than Dean; however, both salespersons
are earning the same contribution margin ratio. Dean’s total sales are less than
Martin’s. However, the manufacturing margin ratio is much different between the
two salespersons. Dean is selling products with a much higher manufacturing
CP 20–4 (FIN MAN); CP 5–4 (MAN)
1. Danica Kyle Richard Tom
2. Danica has the highest contribution margin and contribution margin ratio of the
four salespersons, even though Danica’s sales level is ranked third. There are
two reasons for Danica’s superior performance. First, Danica sells products that
20-45
CP 20–5 (FIN MAN); CP 5–5 (MAN)
1.
Florida Georgia Tennessee
Revenue $1,125,000 $1,000,000 $1,181,250
2. Florida Georgia Tennessee
Increase in contribution margin $78,755 $97,500 $87,775
3. Georgia will generate the greatest profit increase for an additional $42,200
in advertising. This may seem surprising, because the profit report indicates
that Georgia is the least profitable on an absorption costing basis. However,
TRANS SPORT COMPANY
Contribution Margin by State
CP 20–6 (FIN MAN); CP 5–6 (MAN)
1.
Sales (44,000 × $106) $4,664,000
Cost of goods sold (44,000 × $61) 2,684,000
2. The $96,800 difference in the amount of income from operations ($696,800 –
$600,000) is due to the allocation of fixed manufacturing costs to ending
3. a. Base salary……………………………………………………………………
…
$140,000
Bonus ($600,000 – $670,000) × 10%………………………………………
…
—
…
…
…
…
4. By manufacturing 55,000 units, Pinder increased his salary by $2,680.
Note: Instructors may also point out that by increasing the ending inventory by
CRAIG COMPANY
Absorption Costing Income Statement—44,000 units manufactured
For the Year Ended December 31, 2014
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CP 20–6 (FIN MAN); CP 5–6 (MAN) (Concluded)
5. If Pinder’s salary were $140,000 (plus a bonus based on income from operations)
Note: Instructors may ask students to verify that income from operations, using
the variable costing method, would be $600,000 regardless of whether 44,000 or
55,000 units are manufactured. The variable costing income statements are as
follows:
Sales (44,000 × $106) $4,664,000
Sales (44,000 × $106) $4,664,000
Variable cost of goods sold:
CRAIG COMPANY
Variable Costing Income Statement—55,000 units manufactured
For the Year Ended December 31, 2014
CRAIG COMPANY
Variable Costing Income Statement—44,000 Units Manufactured
For the Year Ended December 31, 2014
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