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1. a. Under absorption costing, both variable and fixed manufacturing costs are included as a
p
art of the cost of the product manufactured.
4. In the variable costing income statement, the fixed manufacturing costs and the fixed
5. All costs are controllable by someone within the business but not necessarily by the same
6. In the short run, income from operations is maximized if the revenue from the sale of the
7. Product profitability analysis can be used by management to set product prices, to emphasize
8. Rewarding sales personnel on the basis of total sales will normally motivate the sales staff
to expend their efforts promoting high-volume products, which will produce a large total
9. A change in contribution margin can be attributed to a change in the following factors as
they affect sales and/or variable costs: (1) quantity factor—the effect of a difference in the
CHAPTER 20 (FIN MAN); CHAPTER 5 (MAN)
V
ARIABLE COSTING FOR MANAGEMENT ANALYSIS
DISCUSSION QUESTIONS
CHAPTER 20 Variable Costing for Management Analysis
PE 20–1A (FIN MAN); PE 5–1A (MAN)
PE 20–1B (FIN MAN); PE 5–1B (MAN)
PE 20–2A (FIN MAN); PE 5–2A (MAN)
a. Variable costing income from operations is less than absorption costing
PE 20–2B (FIN MAN); PE 5–2B (MAN)
a. Variable costing income from operations is less than absorption costing
PE 20–3A (FIN MAN); PE 5–3A (MAN)
a. Variable costing income from operations is greater than absorption costing
PE 20–3B (FIN MAN); PE 5–3B (MAN)
a. Variable costing income from operations is greater than absorption costing
PRACTICE EXERCISES
CHAPTER 20 Variable Costing for Management Analysis
PE 20–4A (FIN MAN); PE 5–4A (MAN)
a. $15,000 greater in producing 15,000 units. 12,000 units × (6.25* – 5.00**),
PE 20–4B (FIN MAN); PE 5–4B (MAN)
a. $52,500 greater in producing 15,000 units. 10,000 units × (15.75* – 10.50**),
PE 20–5A (FIN MAN); PE 5–5A (MAN)
PE 20–5B (FIN MAN); PE 5–5B (MAN)
PE 20–6A (FIN MAN); PE 5–6A (MAN)
PE 20–6B (FIN MAN); PE 5–6B (MAN)
CHAPTER 20 Variable Costing for Management Analysis
Ex. 20–1 (FIN MAN); Ex. 5–1 (MAN)
a. The inventory valuation under the absorption costing concept would include
the fixed factory overhead cost, as follows:
b. The inventory valuation under the variable costing concept would not include
the fixed factory overhead cost, as follows:
EXERCISES
CHAPTER 20 Variable Costing for Management Analysis
Ex. 20–2 (FIN MAN); Ex. 5–2 (MAN)
a.
Sales $9,000,000
b.
Sales $9,000,000
Variable cost of goods sold
Variable Costing Income Statement
For the Month Ended July 31, 2014
BEACH MOTORS INC.
Absorption Costing Income Statement
For the Month Ended July 31, 2014
BEACH MOTORS INC.
CHAPTER 20 Variable Costing for Management Analysis
Ex. 20–2 (FIN MAN); Ex. 5–2 (MAN) (Concluded)
c. The difference between the absorption and variable costing income from operations
of $189,000 ($1,215,000 – $1,026,000) can be explained as follows:
Increase in inventory………………………………………………………………
…
10,500
CHAPTER 20 Variable Costing for Management Analysis
Ex. 20–3 (FIN MAN); Ex. 5–3 (MAN)
a.
Sales $24,750,000
Cost of goods sold:
b.
Sales $24,750,000
Variable cost of goods sold
c. The difference between the absorption and variable costing income from
operations of −$180,000 ($7,150,500 − $7,330,500) can be explained as follows:
Variable Costing Income Statement
For the Month Ended February 28, 2014
EKIN INC.
Absorption Costing Income Statement
For the Month Ended February 28, 2014
EKIN INC.
CHAPTER 20 Variable Costing for Management Analysis
Ex. 20–4 (FIN MAN); Ex. 5–4 (MAN)
Ex. 20–5 (FIN MAN); Ex. 5–5 (MAN)
Sales (14,400 units) $1,209,600
Variable cost of goods sold:
=
Absorption cost of goods
manufactured per unit
Number of units produced
For the Month Ended June 30, 2015
b.
HAMAN COMPANY
Variable Costing Income Statement
(variable + fixed)
Number of units produced
a. Variable cost of goods
manufactured per unit =
manufactured per unit =
Variable cost of goods manufactured
Total cost of goods manufactured
CHAPTER 20 Variable Costing for Management Analysis
Ex. 20–6 (FIN MAN); Ex. 5–6 (MAN)
Sales (45,000 units) $6,750,000
Cost of goods sold:
Ex. 20–7 (FIN MAN); Ex. 5–7 (MAN)
a.
Net sales $82,559
Variable cost of products sold 22,830
Variable Costing Income Statement (assumed)
(in millions)
COVELLI EQUIPMENT COMPANY
Absorption Costing Income Statement
For the Month Ended July 31, 2014
PROCTER & GAMBLE COMPANY
CHAPTER 20 Variable Costing for Management Analysis
Ex. 20–8 (FIN MAN); Ex. 5–8 (MAN)
a. 1.
28,800 Units 36,000 Units
Manufactured Manufactured
Sales $2,160,000 $2,160,000
Cost of goods sold:
*Unit cost of goods manufactured:
Direct materials ($1,324,800 ÷ 28,800)……………………………
…
$46.00
Direct labor ($316,800 ÷ 28,800)…………………………………… 11.00
For the Month Ending July 31, 2014
Absorption Costing Income Statement
MUZENSKI INDUSTRIES INC.
CHAPTER 20 Variable Costing for Management Analysis
Ex. 20–8 (FIN MAN); Ex. 5–8 (MAN) (Concluded)
2.
28,800 Units 36,000 Units
Manufactured Manufactured
Sales $2,160,000 $2,160,000
Variable cost of goods sold:
Variable cost of goods manufactured:
*Unit variable cost of goods manufactured:
Direct materials ($1,324,800 ÷ 28,800)……………………………
…
$46.00
b. If 36,000 units rather than 28,800 units are manufactured, the increase in income
from operations of $43,200 ($136,700 – $93,500) under absorption costing is caused
For the Month Ending July 31, 2014
Variable Costing Income Statement
MUZENSKI INDUSTRIES INC.
CHAPTER 20 Variable Costing for Management Analysis
Ex. 20–9 (FIN MAN); Ex. 5–9 (MAN)
a.
Sales $18,666
Variable cost of goods sold:
Beginning inventory (70% × $2,792) $ 1,954
*Variable cost of goods manufactured:
Cost of goods sold………………………………………………………
…
$16,089
Plus: Ending inventory…………………………………………………
…
2,354
Variable Costing Income Statement (assumed)
(in millions)
WHIRLPOOL CORPORATION
CHAPTER 20 Variable Costing for Management Analysis
Ex. 20–9 (FIN MAN); Ex. 5–9 (MAN) (Concluded)
b. The income from operations under the variable costing concept will not be the same
as the income from operations under the absorption costing concept when the
inventories either increase or decrease during the year. In this case, Whirlpool’s
inventory decreased, meaning it sold more than it produced. As a result, the income
CHAPTER 20 Variable Costing for Management Analysis
Ex. 20–10 (FIN MAN); Ex. 5–10 (MAN)
a. Management’s decision and conclusion are incorrect. The profit will not be improved
by $114,000 because the fixed costs used in manufacturing and selling running shoes
b.
Basketball Cross Training Running
Shoes Shoes Shoes
Revenues $696,000 $588,000 $ 504,000
Variable cost of goods sold 252,000 210,000 240,000
c. If the running shoe line were eliminated, then the contribution margin of the product
line also would be eliminated. The fixed costs would not be eliminated. Thus, the
KOBEER, INC
Variable Costing Income Statements—Three Product Lines
For the Year Ended December 31, 2014
CHAPTER 20 Variable Costing for Management Analysis
Ex. 20–11 (FIN MAN); Ex. 5–11 (MAN)
Silent
No Noise Candy
Headphone Headphone
Unit volume increase………………………………………………
…
35,700 39,600
Ex. 20–12 (FIN MAN); Ex. 5–12 (MAN)
a.
Revenues
$12,600,000 $5,720,000
SNOW MOTOR SPORTS INC.
Contribution Margin by Product
ARCTIC CAT
CHAPTER 20 Variable Costing for Management Analysis
Ex. 20–13 (FIN MAN); Ex. 5–13 (MAN)
a.
Sales
b. The total contribution margin is slightly lower for the East Coast, while the
contribution margin ratio is slightly higher for West Coast. This is because East Coast
COAST TO COAST SURFBOARDS INC.
Contribution Margin by Territory
East Coast West Coast
$8,000,000 $8,000,000
CHAPTER 20 Variable Costing for Management Analysis
Ex. 20–14 (FIN MAN); Ex. 5–14 (MAN)
a. 1.
Cassy G. Todd Tim Jeff
Sales $2,688,000 $2,016,000 $2,592,000 $2,964,000
2. Jeff earns the highest contribution margin and has the highest contribution margin
ratio. This is because he sells the most units, has a low commission rate, and sells a
product mix with a high manufacturing margin (60% of sales, $1,778,400 ÷ $2,964,000).
REYES INDUSTRIES INC.
Contribution Margin by Salesperson
CHAPTER 20 Variable Costing for Management Analysis
Ex. 20–14 (FIN MAN); Ex. 5–14 (MAN) (Concluded)
b. 1.
Sales
2. The Southwest Region has $852,000 more sales and $405,120 more contribution
margin. In addition, the Southwest Region has the largest contribution margin
ratio. In the Southwest Region, the salesperson with the highest sales unit volume
$5,556,000
REYES INDUSTRIES INC.
Contribution Margin by Territory
Northeast Southwest
$4,704,000
CHAPTER 20 Variable Costing for Management Analysis
Ex. 20–15 (FIN MAN); Ex. 5–15 (MAN)
a.
Building Large Marine &
Construction Core Electric Power Petroleum
Products Cat Japan Components Earthmoving Power Excavation Systems Logistics Power Mining Turbines
Sales $2,217.00 $1,225.00 $1,234.00 $5,045.00 $2,847.00 $4,562.00 $2,885.00 $659.00 $2,132.00 $3,975.00 $3,321.00
b.
Building Large Marine &
Construction Core Electric Power Petroleum
Products Cat Japan Components Earthmoving Power Excavation Systems Logistics Power Mining Turbines
Manufacturing margin 55.0% 45.0% 51.0% 49.0% 46.0% 48.0% 47.0% 50.0% 50.0% 48.0% 52.0%
CATERPILLAR, INC.
Contribution Margin by Segment (assumed)
(in millions, except ratio figures)
CHAPTER 20 Variable Costing for Management Analysis
Ex. 20–15 (FIN MAN); Ex. 5–15 (MAN) (Concluded)
c. The Building Construction Products segment has the highest contribution margin
ratio. The manufacturing margin is high, while the dealer commission rate is average.
