Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 19
1163
Chapter 19
Variable Costing and Analysis
QUICK STUDIES
Quick Study 19-1 (5 minutes)
Product cost per unit using absorption costing
Per unit
Direct materials ……………………………………………………….
$10
Variable overhead ……………………………………………………
Fixed overhead ($160,000/20,000 units) …………………….
$48
Quick Study 19-2 (5 minutes)
Product cost per unit using variable costing
Per unit
Direct materials ……………………………………………………….
$10
Variable overhead ……………………………………………………
$40
Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 19
1164
Quick Study 19-3 (10 minutes)
Cost
Amount
Absorption
Costing
Variable
Costing
Direct materials ………………………
$3 per unit
Product
Product
Direct labor …………………………..
$5 per unit
Product
Product
$2 per unit
Product
Product
Product
Variable selling and
Quick Study 19-4 (15 minutes)
ACES INC.
Income Statement (Variable Costing)
$441,000
$122,500
Quick Study 19-5 (10 minutes)
Finished goods inventory under variable costing
Direct materials ……………………………………………………………………
$12
Direct labor …………………………..……………………………………………..
8
Variable overhead ………………………………………………………………..
Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 19
1165
Quick Study 19-6 (15 minutes)
ACES INC.
Income Statement (Absorption Costing)
Sales (4,900 units x $90 per unit) ………………………………………………….
$441,000
Cost of goods sold (4,900 units x $38 per unit*) …………………………….
186,200
Selling and administrative expenses**…………………………………
75,000
Quick Study 19-7 (10 minutes)
Finished goods inventory under absorption costing
Direct materials ……………………………………………………………………
$12
Direct labor ………………………………………………………………………….
Fixed overhead ($78,000/6,000) …………………………………………….
Quick Study 19-8 (10 minutes)
(a)
Absorption
costing
(b)
Variable
costing
Direct materials ………………………………………………..
$20
$20
Direct labor ………………………………………………………
12
12
Variable overhead …………………………………………….
Fixed overhead …………………………………………………
Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 19
1166
Quick Study 19-9 (10 minutes)
20,000 units produced and 20,000 units sold
RAMORT COMPANY
Gross Profit (Absorption Costing)
Sales (20,000 units x $60 per unit) …………………………………..
$1,200,000
Quick Study 19-10 (15 minutes)
a. 40,000 units produced and 20,000 units sold
RAMORT COMPANY
Gross Profit (Absorption Costing)
Sales (20,000 units x $60 per unit) …………………………………..
$1,200,000
b.
Gross profit, 40,000 units produced and 20,000 units sold …………………….
$680,000
Increase in gross profit from overproduction …………………………..
$ 20,000
Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 19
1167
Quick Study 19-11 (10 minutes)
20,000 units produced and 20,000 units sold
RAMORT COMPANY
Contribution Margin (Variable Costing)
Sales (20,000 units x $60 per unit) …………………………………
$1,200,000
Quick Study 19-12 (10 minutes)
a. 40,000 units produced and 20,000 units sold
RAMORT COMPANY
Contribution Margin (Variable Costing)
Sales (20,000 units x $60 per unit) …………………………………
$1,200,000
Variable expenses
b. No change ($0).
Explanation: If Ramort uses variable costing, there is no change in
contribution margin from that in QS 19–11 because fixed overhead costs
Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 19
1168
Quick Study 19-13 (10 minutes)
1. Using absorption costing, total product cost per unit if 12,500 units are
produced follows:
Absorption costing
Per unit
Direct materials …………………………………………………………………
$3
Direct labor ……………………………………………………………………….
Variable overhead ……………………………………………………………..
Fixed overhead ($50,000/12,500 units produced) ………………..
2. Decrease. If units produced is greater than units sold, cost of goods sold
Quick Study 19-14 (10 minutes)
D’SOUZA COMPANY
Gross Profit (Absorption Costing)
Sales (10,000 units x $80 per unit) ……………………………………….
$800,000
Quick Study 19-15 (10 minutes)
D’SOUZA COMPANY
Contribution Margin
Sales (10,000 units x $80 per unit) ……………………………..
$800,000
Variable expenses
Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 19
Quick Study 19-16 (10 minutes)
Contribution Margin
Sales …………………………………………………………………………………..
$600,000
Variable cost of goods sold …………………………………………………
200,000
$330,000
Quick Study 19-17 (10 minutes)
Contribution Margin Ratio
Sales …………………………………………………………………………………..
$600,000
Variable cost of goods sold …………………………………………………
200,000
Variable selling and administrative expenses ……………………….
Quick Study 19-18 (5 minutes)
Case 1
Case 2
Case 3
Absorption costing will be _____ _
variable costing income ………………………..
Equal to
Greater than
Less than
Explanations
Case 1—Absorption and variable costing income levels differ only when units
Case 2—When units produced exceeds units sold, ending inventory increases.
Under absorption costing, fixed overhead is a product cost that is included in
Case 3—When units produced are less than units sold, ending inventory
decreases. The fixed overhead cost included in the units sold from inventory
Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 19
1170
Quick Study 19-19 (15 minutes)
DIAZ COMPANY
Income Statement (Absorption Costing)
Sales (50,000 units x $60 per unit) ……………………………………..
$3,000,000
Cost of goods sold (50,000 units x $32 per unit*) ……………….
1,600,000
1,400,000
Quick Study 19-20 (10 minutes)
a.
Per unit
Direct materials …………………………………………………………………
$50
Direct labor ……………………………………………………………………….
Variable overhead ……………………………………………………………..
Fixed overhead ………………………………………………………………….
b.
Per unit
Absorption cost per unit …………………………………………………….
$70
Target markup ($70 x 40%) …………………………..…………………….
Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 19
1171
Quick Study 19-21 (10 minutes)
a.
Special Order Analysis
Sales (2,000 x $68) ……………………………………………………….
$136,000
Variable costs (2,000 x $48) ………………………………………….
$ 40,000
Quick Study 19-22 (10 minutes)
a.
Northern Territory
Southern Territory
Sales ……………………………………
$1,000,000
$1,200,000
Quick Study 19-23A (10 minutes)
Variable costing income …………………………………………………………..
$772,200
Fixed overhead in beginning FG inventory (7,800 x $3) ……………..
(23,400)
$764,400
Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 19
Quick Study 19-24A (10 minutes)
Variable costing income …………………………………………………………
$250,000
Fixed overhead in ending FG inventory (48,000 x $0.75) …………..
Fixed overhead in beginning FG inventory (50,000 x $0.75) ……..
(37,500)
$248,500
Quick Study 19-25A (10 minutes)
Variable costing income …………………………………………………………
$386,100
Fixed overhead in ending FG inventory (0 units) ……………………..
Fixed overhead in beginning FG inventory (2,600 x $4) ……………
(10,400)
$375,700
Quick Study 19-26A (10 minutes)
Variable costing income …………………………………………………………
$130,000
Fixed overhead in ending FG inventory (4,900 x $2.50) …………….
Fixed overhead in beginning FG inventory (0 units) …………………
Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 19
1173
Quick Study 19-27A (10 minutes)
a. Greater than. We see that production is greater than sales. This means
absorption costing income is greater than variable costing income.
b. Difference in income:
Quick Study 19-28A (10 minutes)
a. Less than. We see that production is less than sales. This means
absorption costing income is less than variable costing income.
b. Difference in income:
Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 19
1174
EXERCISES
Exercise 19-1 (15 minutes)
1. Product cost per unit using absorption costing:
Per Unit
Direct materials …………………………………………………………….
$15
Direct labor …………………………………………………………………..
16
Variable overhead …………………………………………………………
2. Cost of ending finished goods inventory using absorption costing:
6,000 units x $43 per unit = $258,000
Exercise 19-2 (15 minutes)
1. Product cost per unit using variable costing:
Per Unit
Direct materials ……………………………………………………………
$15
Direct labor ………………………………………………………………….
16
Variable overhead ………………………………………………………..
Total product cost per unit ……………………………………………
2. Cost of ending finished goods inventory using variable costing:
6,000 units x $35 per unit = $210,000
Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 19
1175
Exercise 19-3 (25 minutes)
1a.
Product cost per unit using absorption costing
Per Unit
Direct materials ………………………………………………………………..
$ 60
Variable overhead …………………………………………………………….
Fixed overhead ($528,000/44,000 units produced) ……………..
1b.
Income Statement (Absorption Costing)
Sales (36,000 units x $140 per unit) …………………………………..
$5,040,000
Gross profit ………………………………………………………………………
Selling and administrative expenses* ………………………………..
2a.
Product cost per unit using variable costing
Per Unit
Direct materials ………………………………………………………………..
$ 60
Variable overhead …………………………………………………………….
Total product cost per unit ………………………………………………..
$ 90
2b.
Income Statement (Variable Costing)
Sales (36,000 units x $140 per unit) ………………………
$5,040,000
Variable expenses
Variable cost of goods sold* ……………………………….
$3,240,000
Variable selling and administrative expenses**
Fixed expenses
Fixed overhead …………………………………………………..
Fixed selling and administrative expenses ………….
1176
Exercise 19-4 (15 minutes)
Units Produced _
Product cost per unit using absorption costing
2,000
2,400
3,000
Direct materials ………………………………………………….
$ 35
$ 35
$ 35
25
Variable overhead ………………………………………………
Exercise 19-5 (15 minutes)
Gross profit using
absorption costing
(a) 2,000 Units
Produced and
2,000 Units Sold
(b) 2,400 Units
Produced and
2,000 Units Sold
Sales (2,000 x $150) …………………………………..
$300,000
$300,000
(2,000 x $90)** ……………..
Exercise 19-6 (15 minutes)
Contribution margin using
variable costing
(a) 2,000 Units
Produced and
2,000 Units Sold
(b) 2,400 Units
Produced and
2,000 Units Sold
Sales (2,000 x $150) ……………………………………..
$300,000
$300,000
Variable expenses
Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 19
1177
Exercise 19-7 (25 minutes)
1.
SIMS COMPANY
Income Statement (Variable Costing)
Sales (70,000 units x $350 per unit) ………………………..
$24,500,000
Variable expenses
Variable cost of goods sold (70,000 units x 130/unit*) ……
$9,100,000
Fixed expenses
Fixed overhead ……………………………………………………
2.
SIMS COMPANY
Income Statement (Absorption Costing)
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
Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 19
1178
Exercise 19-8 (15 minutes)
KENZI
Income Statement (Variable Costing)
Sales (800 x $1,100) ………………………………………………….
$880,000
Variable expenses
$320,000
Fixed expenses
Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 19
1179
Exercise 19-9 (25 minutes)
a.
REY COMPANY
Income Statement (Absorption Costing)
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
b.
REY COMPANY
Income Statement (Variable Costing)
Sales (20,000 units x $216 per unit) …………………………………..
$4,320,000
Variable expenses
Variable cost of goods sold (20,000 units x $54/unit*) …….
$1,080,000
Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 19
1180
Exercise 19-10 (15 minutes)
HAYEK BIKES
Income Statement (Absorption Costing)
Sales (225 units x $1,600 per unit) …………………………………………
$360,000
Cost of goods sold (225 units x $775 per unit*) ……………………..
174,375
Gross profit ………………………………………………………………………….
Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 19
1181
Exercise 19-11 (20 minutes)
1.
OAK MART
Income Statement (Variable Costing)
Sales (117,000 units x $320 per unit) ………………………
$37,440,000
Variable expenses
Variable cost of goods sold* ………………………………..
$15,210,000
Variable selling and admin. expenses (117,000 x $12) …….
1,404,000
16,614,000
Fixed expenses
Fixed overhead ……………………………………………………
2.
OAK MART
Income Statement (Absorption Costing)
Sales (117,000 units x $320 per unit) ……………………………….
$37,440,000
Cost of goods sold* ……………………………………………………….
22,230,000
Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 19
1182
Exercise 19-12 (15 minutes)
DION COMPANY
Income Statement (Variable Costing)
Sales …………………………………………………………………….
$360,000
Variable expenses
Variable cost of goods sold* ………………………………..
$255,000
Variable selling and administrative expenses ……….
30,000
285,000
Fixed expenses
Fixed overhead ……………………………………………………
Fixed selling and administrative expenses …………..
10,000
Exercise 19-13 (15 minutes)
TREVOR COMPANY
Income Statement (Absorption Costing)
Sales ………………………………………………………………………….
$320,000
Cost of goods sold* ……………………………………………………
231,400