Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 19
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Exercise 19-14 (15 minutes)
1.
(a) 60,000 Units
Produced and
60,000 Units Sold
(b) 80,000 Units
Produced and
60,000 Units Sold
Sales (60,000 x $56) …………………………………
$3,360,000
$3,360,000
2. Increase by $180,000. The company’s gross profit increases by $180,000
($1,230,000 – $1,050,000) by producing 20,000 more units than it sells.
Exercise 19-15 (15 minutes)
1.
(a) 12,000 Units
Produced and
12,000 Units Sold
(b) 15,000 Units
Produced and
12,000 Units Sold
Sales (12,000 x $25) …………………………………
$300,000
$300,000
2. $0 using variable costing. Gross profit does not differ depending on units
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Exercise 19-16 (10 minutes)
Direct materials …………………………………………………………………
Direct labor ……………………………………………………………………….
Variable overhead ……………………………………………………………..
Fixed overhead ($600,000/50,000 units) ………………………………
Target markup per unit ($150 x 40%)…………………………………..
Target selling price per unit ……………………………………………….
Exercise 19-17 (10 minutes)
a. Contribution margin from Bikers’ Club special offer:
Revenue (150 suites x $125 per night) ………………………………..
$18,750
Variable costs (150 suites x $110 per night) ………………………..
16,500
$ 2,250
Exercise 19-18 (10 minutes)
a. Contribution margin from offer:
Revenue ………………………………………………………………….
$11,000
Variable costs
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Exercise 19-19 (10 minutes)
a. Contribution margin from offer:
Exercise 19-20 (15 minutes)
West Coast
East Coast
Sales (500 bikes x $1,000; 500 bikes x $960) ………………
$500,000
$480,000
Variable expenses
Exercise 19-21 (15 minutes)
Road bikes
Mountain bikes
Sales (600 bikes x $1,200; 600 bikes x $800) ……………….
$720,000
$480,000
Variable expenses
Variable cost of goods sold
(600 bikes x $840; 600 bikes x $480) …………………….
b.
Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 19
Exercise 19-22A (10 minutes)
Convert variable costing income to absorption costing income
Year 1
Year 2
Year 3
Variable costing income …………………………..……
$110,000
$114,400
$118,950
Fixed overhead in beginning FG inventory* ……
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PROBLEM SET A
Problem 19-1A (20 minutes)
DOWELL COMPANY
Income Statements (Variable Costing)
Year 1
Year 2
Sales ($46 per unit sold) ……………………………………………..
$920,000
$1,840,000
Variable expenses
Variable cost of goods sold ($21 per unit*) ……………….
420,000
840,000
450,000
Fixed selling and administrative expenses ………….
120,000
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Problem 19-2A (20 minutes)
TREZ COMPANY
Income Statement (Variable Costing)
Sales (80,000 units x $50 per unit) ……………………………………
$4,000,000
Variable expenses
Variable cost of goods sold (80,000 units x $21*) …………
$1,680,000
Fixed expenses
Fixed overhead ……………………………………………………
*Direct materials …………………….
$ 5 per unit
Direct labor …………………………...
14 per unit
Variable overhead ………………….
2 per unit
Total variable product costs …..
$21 per unit
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Problem 19-3A (30 minutes)
Part 1
a.
BLAZER CHEMICAL
Income Statement (Absorption Costing)
Sales (15,000 tons x $80 per ton) ……………………………………………
$1,200,000
Cost of goods sold (15,000 tons x $50 per ton*) ……………………..
750,000
300,000
b. Yes, a positive income results. Producing excess inventory increases
income when using absorption costing.
Part 2
$150,000.
Explanation: Blazer Chemical can increase its income by $150,000 by
Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 19
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Problem 19-4AA (20 minutes)
DOWELL COMPANY
Convert Variable Costing Income to Absorption Costing Income
Year 1
Year 2
Variable costing income ………………………………………………….
$ 30,000
$480,000
_______
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PROBLEM SET B
Problem 19-1B (20 minutes)
ZULE COMPANY
Income Statements (Variable Costing)
Year 1
Year 2
Sales ($35 per unit sold) ………………………………………….
$1,925,000
$2,275,000
Variable expenses
Fixed expenses
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Problem 19-2B (20 minutes)
LONTE COMPANY
Income Statement (Variable Costing)
Sales (250,000 units x $18 per unit) ………………………….
$4,500,000
Variable expenses
Fixed expenses
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Problem 19-3B (30 minutes)
Part 1
a.
POOL PRO
Income Statement (Absorption Costing)
Sales (250,000 gallons x $8 per gallon) …………………………..
$2,000,000
b. Yes, it can report a positive income. Producing excess inventory yields a
positive income using absorption costing. In this case, by increasing
production to 300,000 gallons, and storing the 50,000 gallons of excess
Part 2
No (because of ethical concerns involving managers).
Explanation: It would be unethical to produce an extra 50,000 gallons for
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Problem 19-4BA (20 minutes)
ZULE COMPANY
Convert Variable Costing Income to Absorption Costing Income
Year 1
Year 2
Variable costing income ………………………………………………….
$ 7,000
$113,000
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Serial Problem — SP 19
Serial Problem—Business Solutions (40 minutes)
Part 1 (a and b)
BUSINESS SOLUTIONS
Income Statements (Absorption Costing)
For Year Ended 2021
Workstations produced
(a) 300
(b) 320
Sales (300 units x $3,000) …………………………………….
$900,000
$900,000
Gross profit …………………………………………………………
* Absorption costing cost per unit for 300 units produced:
Direct materials ………………………………..
$ 800 per unit
Direct labor ………………………………………
400 per unit
Variable overhead …………………………….
100 per unit
Fixed overhead ($24,000/300 units)……
80 per unit
Total cost per unit …………………………….
** Absorption costing cost per unit for 320 units produced:
Direct materials ………………………………..
$ 800 per unit
Direct labor ………………………………………
400 per unit
Variable overhead …………………………….
100 per unit
Fixed overhead ($24,000/320 units) ……
75 per unit
Total cost per unit …………………………….
***Selling expenses
Variable ($50 x 300) …………………………..
$ 15,000
Fixed ………………………………………………..
4,000
Total selling expenses ………………………
$ 19,000
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Serial Problem (Concluded)
Part 2 (a and b)
BUSINESS SOLUTIONS
Income Statements (Variable Costing)
For Year Ended 2021
Workstations produced
(a) 300
(b) 320
Sales (300 units x $3,000) …………………………………………
$900,000
$900,000
Variable expenses
Variable cost of goods sold (300 x $1,300*) ……………
390,000
390,000
Variable selling and admin. expenses (300 x $50) ……..
Fixed selling and administrative expenses …………….
Part 3
Absorption costing yields the higher income.
Absorption costing yields the higher income when 320 workstations are
produced and 300 are sold; in our case, income is increased by $1,500.
This is equal to 20 units x $75 per unit in fixed overhead that will be
Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 19
Company Analysis — AA 19–1
1.
iPhone
Services
Sales ………………………………………………
$142,381
$46,291
2. Services. The services product line performed better. Its contribution
Comparative Analysis — AA 19-2
1.
Smartphone product line
Apple
Google
Sales ………………………………………………
$142,381
$17,104
2. Apple. Apple’s smartphone product line performed better. Its contribution
Extended Analysis — AA 19-3
1.
Smartphone product line
Apple
Samsung
Sales ………………………………………………
$142,381
$38,402
2. Apple. Apple’s smartphone product line performed better. Its contribution
margin ratio of 48% is higher than that for Samsung (46%).
Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 19
DISCUSSION QUESTIONS
1. Variable costing includes direct materials, direct labor, and variable overhead as product
costs. Fixed overhead is treated as a period cost and is not included as a product cost.
2. Absorption costing includes direct materials, direct labor, variable overhead and fixed
3. When units produced exceed units sold for a reporting period, income under variable
costing would be less than income determined under absorption costing. This is because
4. a. Gross profit is computed as sales minus cost of goods sold. Cost of goods sold
includes full absorption cost of products, which includes direct materials, direct
5. For short-run pricing decisions (such as special orders) absorption costing may not be
6. Absorption costing includes fixed overhead costs in product costs. When companies
overproduce (production exceeds sales), inventory levels increase, and these fixed
7. There are several factors that Apple should consider before pricing this special order.
First, the selling price should exceed the variable costs of manufacturing them – the direct
8. The contribution margin ratio is computed as contribution margin divided by sales.
10. To convert variable costing income to absorption costing income, add the fixed overhead
cost in ending inventory and subtract the fixed overhead cost in beginning inventory.
Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 19
Ethics Challenge — BTN 19-1
1. FDP Company must use absorption costing to determine its income for
external reporting purposes. Absorption costing “absorbs” both variable
and fixed overhead costs into each unit of inventory. FDP can avoid
2. Yes, there is an ethical concern. If the company produces excess
inventory it cannot sell, it will spend resources unnecessarily. The
company’s financial position will appear better than it really is, and
stockholders will be deceived as to the company’s performance. Prudent
stockholders or potential stockholders should closely examine the
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Communicating in Practice — BTN 19-2
MEMORANDUM
TO: ____________________
FROM: ____________________
DATE: ____________________
SUBJECT: ____________________
Break-even volume is determined by dividing total fixed expenses by the
contribution margin per unit. The contribution margin is selling price less
total variable costs. If a company uses variable costing, the break-even
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Teamwork in Action — BTN 19-3
Answers will vary, but students’ answers should center on several issues:
• In the long run, companies must recover all costs of production, fixed as
well as variable. Long-run pricing must consider the full absorption cost
of the product.
Entrepreneurial Decision — BTN 19-4
Da Bomb’s income measured under absorption would likely be different from
its income measured under variable costing. The difference in income
between these two methods depends on the amount of finished goods
inventory. Since Da Bomb makes goods, it likely holds goods in inventory.
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