Violins- by - Lucy produces student-grade violins for beginningviolin students. The company produced 2,400 violins in its firstmonth of operations. At month-end, 650 finished violins remainedunsold. There was no inventory in work in process. Violins weresold for $117.50 each. Total costs from the month are asfollows:
Data Table:
Direct materials used: $111,400
Direct labor: $60,000
Variable manufacturing overhead: $35,000
Fixed manufacturing overhead: $52,800
Variable selling and administrative expenses: $11,000
Fixed selling and administrative expenses: $13,500
The company prepares traditional (absorption costing) incomestatements for its bankers. Lucy would also like to preparecontribution margin income statements for management use.
Read the requirements:
Gross profit
Contribution margin
Total expenses shown BELOW the GROSS PROFITline
Total expense shown BELOW the CONTRIBUTION MARGINline
Dollar value of ending inventory under absorption costing
Dollar value of ending inventory under variable costing
Which income statement has a higher operating income and by howmuch? Explain.
Violins- by - Lucy produces student-grade violins for beginningviolin students. The company produced 2,400 violins in its firstmonth of operations. At month-end, 650 finished violins remainedunsold. There was no inventory in work in process. Violins weresold for $117.50 each. Total costs from the month are asfollows:
Data Table:
Direct materials used: $111,400
Direct labor: $60,000
Variable manufacturing overhead: $35,000
Fixed manufacturing overhead: $52,800
Variable selling and administrative expenses: $11,000
Fixed selling and administrative expenses: $13,500
The company prepares traditional (absorption costing) incomestatements for its bankers. Lucy would also like to preparecontribution margin income statements for management use.
Read the requirements:
Gross profit
Contribution margin
Total expenses shown BELOW the GROSS PROFITline
Total expense shown BELOW the CONTRIBUTION MARGINline
Dollar value of ending inventory under absorption costing
Dollar value of ending inventory under variable costing
Which income statement has a higher operating income and by howmuch? Explain.
Related questions
The information below representsthe beginning and ending inventory amounts along with theproduction and sales for the month in umbrella units
Beginning Inventory: 0 Umbrellas
Production: 80,000 Umbrellas
Sales: 60,000 Umbrellas
Ending Inventory: 20,000 Umbrellas
The Hampshire Company manufactures umbrellas that sell for$12.50 each. In 2014, the company made and sold 60,000 umbrellas.The company had fixed manufacturing costs of $216,000. It also hadfixed costs for administration of $79,525. The per-unit costs ofeach umbrella are as follows:
Using the information
Prepare a variable costing income statement.
Prepare an absorption costing income statement.
Direct Materials: $3.00
Direct Labor: $1.50
Variable Manufacturing Overhead:$0.40
Variable Selling Expenses: $1.10
| Requirement 1 | ||||
| Hampshire Company | ||||
| Variable Costing IncomeStatement | ||||
| Units | $ | |||
| Sales | X | $ | $ | |
| Variable Cost of Goods Sold: | ||||
| Beginning Inventory | $ | |||
| Direct Materials | X | $ | $ | |
| Direct Labor | X | $ | $ | |
| Manufacturing Overhead | X | $ | $ | |
| Total Variable Costs | $ | |||
| Cost of Good Available for Sale | $ | |||
| Deduct Ending Inventory | X | $ | $ | |
| Variable Costs of GoodsSold | $ | |||
| Variable Selling Costs | X | $ | $ | $ |
| Contribution Margin | $ | |||
| Fixed Costs: | ||||
| Fixed Manufacturing Costs | $ | |||
| Fixed Administrative Costs | $ | |||
| Operating Income | $ | |||
| Requirement 2 | ||||
| Hampshire Company | ||||
| Absorption Costing IncomeStatement | ||||
| Units | $ | |||
| Sales | X | $ | $ | |
| Variable Cost of Goods Sold: | ||||
| Beginning Inventory | $ | |||
| Direct Materials | X | $ | $ | |
| Direct Labor | X | $ | $ | |
| Manufacturing Overhead | X | $ | $ | |
| Total Variable Costs | $ | |||
| Allocated Fixed Manufacturing Costs | X | $ | $ | |
| Cost of Good Available for Sale | $ | |||
| Deduct Ending Inventory | X | $ | $ | |
| Costs of GoodsSold | $ | |||
| Gross Margin | $ | |||
| Fixed Costs: | ||||
| Variable Selling Costs | X | $ | $ | |
| Fixed Administrative Costs | $ | |||
| Operating Income | $ | |||
Bell Company manufactures and sells a single product. Cost datafor the product follow: |
| Variable costs perunit: | ||
| Direct materials | $ | 3 |
| Direct labor | 12 | |
| Variable factory overhead | 3 | |
| Variable selling andadministrative | 3 | |
| Total variable costsper unit | $ | 21 |
| Fixed costs permonth: | ||
| Fixed manufacturingoverhead | $ | 120,000 |
| Fixed selling andadministrative | 166,000 | |
| Total fixed cost permonth | $ | 286,000 |
The product sells for $48 per unit.Production and sales data for May and June, the first two months ofoperations, are as follows: |
| Units Produced | Units Sold | |
| May | 24,000 | 20,000 |
| June | 24,000 | 28,000 |
Income statements prepared by theaccounting department, using absorption costing, are presentedbelow: |
| May | June | |||
| Sales | $ | 960,000 | $ | 1,344,000 |
| Cost of goodssold | 460,000 | 644,000 | ||
| Gross margin | 500,000 | 700,000 | ||
| Selling andadministrative expenses | 226,000 | 250,000 | ||
| Net operatingincome | $ | 274,000 | $ | 450,000 |
| Required: |
| 1. | Determine the unit product cost under absorption costing andvariable costing. |
| Unit Product Cost | ||
| Absorption costing | ||
| Variablecosting | ||
| 2. | Prepare contribution format variable costing income statementsfor May and June. (Input all amounts as positive valuesexcept losses which should be indicated by a minussign.) |
| Variable Costing Income Statement | ||
| May | June | |
| (Click toselect)SalesFixed manufacturing overheadVariable cost of goodssoldNet operating income (loss)Contribution marginFixed selling andadministrative expensesVariable selling and administrativeexpenses | $ | $ |
| Variableexpenses: | ||
| (Click toselect)SalesContribution marginNet operating income (loss)Variablecost of goods soldFixed selling and administrative expensesDirectmaterialsFixed manufacturing overhead | ||
| (Click toselect)Contribution marginSalesFixed selling and administrativeexpensesFixed manufacturing overheadNet operating income(loss)Variable selling and administrative expensesDirectmaterials | ||
| Total variableexpenses | ||
| (Click toselect)Gross marginContribution margin | ||
| Fixed expenses: | ||
| (Click to select)Variableselling and administrative expensesFixed manufacturingoverheadDirect materialsContribution marginSalesNet operatingincome (loss)Variable cost of goods sold | ||
| (Click to select)Fixedselling and administrative expensesVariable cost of goodssoldDirect materialsVariable selling and administrative expensesNetoperating income (loss)Contribution marginSales | ||
| Total fixedexpenses | ||
| Net operating income(loss) | $ | $ |
| 3. | Reconcile the variable costing and absorption costing netoperating incomes. (Loss amounts and amounts to be deductedshould be indicated with a minus sign.) |
| Reconciliation of Variable Costing and Absorption Costing NetOperating Incomes | ||
| May | June | |
| Variable costing netoperating income (loss) | $ | $ |
| Add (deduct) fixedmanufacturing overhead cost deferred in (released from) inventory under absorption costing | ||
| Absorption costingnet operating income (loss) | $ | $ |
