Case 6-30 (continued)
Division
Association
Total
Membership
Magazine
Subscriptions
Books &
Reports
Continuing
Education
Sales:
Membership dues……………………….
$2,000,000
$1,600,000
$400,000
Non-member magazine
subscriptions …………………………..
75,000
75,000
Advertising ……………………………….
100,000
100,000
Reports and texts ………………………
700,000
$700,000
Continuing education courses ……….
400,000
$400,000
Total revenues …………………………..
3,275,000
1,600,000
575,000
700,000
400,000
Expenses traceable to segments:
Salaries ……………………………………
840,000
210,000
150,000
300,000
180,000
Personnel costs ………………………….
210,000
52,500
75,000
Occupancy costs ………………………..
46,000
46,000
119,000
600,000
Other membership services ………….
500,000
500,000
Printing and paper ……………………..
320,000
112,000
Postage and shipping ………………….
146,000
90,000
56,000
Total traceable expenses ……………..
2,953,000
1,408,500
481,000
662,000
401,500
Division segment margin ………………..
322,000
$ 191,500
$ 94,000
$ 38,000
$ (1,500)
[The statement is continued on the next page.]
Case 6-30 (continued)
[Continuation of the segmented income statement.]
Division
Association
Total
Membership
Magazine
Subscriptions
Books &
Reports
Continuing
Education
Division segment margin ………………..
322,000
$ 191,500
$ 94,000
$ 38,000
$ (1,500)
Common expenses not traceable to divisions:
Salaries—corporate staff ………………
80,000
30,000
Total common expenses …………………
191,000
Excess of revenues over expenses ……
Case 6-30 (continued)
2. While we do not favor the allocation of common costs to segments, the
most common reason given for this practice is that segment managers
need to be aware of the fact that common costs do exist and that they
must be covered.
Arguments against allocation of all costs:
• Allocation bases will need to be chosen arbitrarily because no cause-
and-effect relationship exists between common costs and the
Appendix 6A
Super-Variable Costing
Exercise 6A-1 (10 minutes)
1. a. The unit product cost under super-variable costing would include
direct materials of $18.
b. The super-variable costing income statement would be:
Sales (20,000 units × $50 per unit) ………..
$1,000,000
Variable cost of goods sold
(20,000 units × $18 per unit) ……………
360,000
Contribution margin …………………………….
Fixed expenses:
Net operating income …………………………..
$ 110,000
Exercise 6A-2 (20 minutes)
1. a. The unit product cost under super-variable costing would include
direct materials of $13.
b. The super-variable costing income statement would be:
Sales (52,000 units × $40 per unit) ………..
Variable cost of goods sold
Contribution margin …………………………….
Fixed expenses:
Net operating income …………………………..
2. a. The unit product cost under variable costing would be:
Direct materials …………………………………………………….
$13.00
Direct labor ($750,000 ÷ 60,000 units) ………………………
12.50
Variable costing unit product cost ……………………………..
$25.50
b. The variable costing income statement would be:
Sales (52,000 units × $40 per unit) ………
$2,080,000
Variable cost of goods sold
(52,000 units × $25.50 per unit) …….
1,326,000
Contribution margin ………………………….
Fixed expenses:
$420,000
expense …………………………………….
Net operating income ………………………..
$ 224,000
Exercise 6A-2 (continued)
3. The difference between the super-variable costing and variable costing
net operating incomes is explained as follows:
Units in ending inventory = Units in beginning inventory + Units
produced – Units sold = 0 units + 60,000 units – 52,000 units
= 8,000 units
Exercise 6A-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 (@ $50 per unit) …………………………...
$2,000,000
$3,000,000
Variable cost of goods sold (@ $12 per unit) .
Contribution margin ……………………………….
Total fixed expenses ………………………………
1,130,000
Net operating income …………………………….
2. a. The unit product costs under variable costing:
Year 1
Year 2
Direct materials ………………………………
$12
$12
Direct labor ……………………………………
*10
*10
Variable costing unit product cost ……….
$22
$22
* $500,000 ÷ 50,000 units = $10 per unit.
Exercise 6A-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:
Total fixed expenses ………………………………
630,000
Net operating income …………………………….
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
Deduct: Direct labor cost in beginning
inventory (10,000 units × $10 per unit) …..
0
100,000
Direct labor cost deferred in (released from)
inventory ………………………………………….
$100,000
$(100,000)
Super-variable costing net operating income .
Deduct: Direct labor released from
Variable costing net operating income ……….
Problem 6A–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 (@ $45 per unit) ……………………………………….
$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:
Total fixed expenses ………………………………………….
1,732,000
1,732,000
1,732,000
Net operating income (loss) ………………………………..
$ (137,000)
Problem 6A–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
*Direct labor cost per unit for each year: $540,000 ÷ 60,000 units = $9.
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) …………..
Contribution margin …………………………………………..
Fixed expenses:
Total fixed expenses ………………………………………….
Net operating income (loss) ………………………………..
Problem 6A–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
Deduct: Direct labor cost in beginning
inventory (5,000 units × $9 per unit) ………
0
0
45,000
inventory ………………………………………….
$ 0
$45,000
Super-variable costing net operating income
(loss) ……………………………………………….
$8,000
Add: Direct labor deferred in inventory
Deduct: Direct labor released from
inventory under variable costing …………….
Variable costing net operating income (loss) .
$8,000
Problem 6A-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 …………………………….
Fixed expenses:
640,000
Net operating income …………………………..
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
Contribution margin …………………………….
Fixed expenses:
390,000
Net operating income …………………………..
Problem 6A-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
Sales (18,000 units × $55 per unit) ……………………..
$990,000
Cost of goods sold (18,000 units × $46.50 per unit) ..
Gross margin …………………………………………………..
Selling and administrative expenses ……………………..
Net operating income ………………………………………..
4. The difference between the super-variable costing and variable costing
net operating incomes is the direct labor deferred in (or released from)
inventory during the period, which is determined as follows:
Units in ending inventory = Units in beginning inventory + Units
produced – Units sold = 0 units + 20,000 units – 18,000 units
= 2,000 units
Super-variable costing net operating income …………
Variable costing net operating income …………………
Problem 6A-5 (continued)
4. The difference between the super-variable costing and absorption
costing net operating incomes is explained as follows:
Direct labor and fixed manufacturing overhead cost deferred in
(released from) inventory = Direct labor and fixed manufacturing
overhead cost in ending inventory – Direct labor and fixed
manufacturing overhead cost in beginning inventory = [2,000 units ×
($12.50 per unit + $15.00 per unit)] – $0 = $55,000