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30 May 2018

Crossbow Corp. produces a single product. Data concerning June's operations follow: Units in beginning inventory 0 Units produced 6,000 Units sold 5,000 Variable costs per unit: Manufacturing $ 7 Selling and administrative $ 3 Fixed costs in total: Manufacturing $12,000 Selling and administrative $ 3,000 For the year in question, net operating income under variable costing will be: higher than net operating income under absorption costing. lower than net operating income under absorption costing. the same as net operating income under absorption costing. The relation between absorption costing and variable costing net operating income cannot be determined.

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Casey Durgan
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30 May 2018

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Denton Company manufactures and sells a single product.
Cost data for the product are given below:

Variable costs per unit:

Direct materials $7
Direct labor $10
Variable manufacturing overhead $5
Variable selling and administrative $3
Total variable cost per unit $25

Fixed costs per month:

Fixed manufacturing overhead $ 315,000
Fixed selling and administrative $ 245,000
Total fixed cost per month $ 560,000
The product sells for $60 per unit.

Production and sales data for July and August, the first two months of operations, follow:
          Units Produced    Units Sold
July          17,500           15,000
August      17,500           20,000

The company’s Accounting Department has prepared absorption costing income statements for July and August as presented below:


                                                       July                 August
Sales                                            $900,000          $1,200,000    
Cost of goods sold                         $600,000              $800,000     
Gross margin                                 $300,000             $400,000    
Selling and administrative expenses  $290,000            $305,000     
Net operating income                       $10,000             $95,000   

Required:

1. Determine the unit product cost under absorption costing and variable costing.

2. Prepare contribution format variable costing income statements for July and August.

3. Reconcile the variable costing and absorption costing net operating income figures.
*July/August
Variable costing net operating income (loss)
Add/Deduct fixed manufacturing overhead cost deferred in/released from
inventory under absorption costing
Absorption costing net operating income/loss

 

Hurlex Company produces a single product. last yar,Hurlexmanufactured 15,000 units and sold 12,000 units. Production costsfor the yar were as follows:

Directmaterials.....................................$150,000

Directlabor..........................................$180,000

Variable manufacturing overhead...........$135,000

Fixed manufacturing overhead................$210,000

Sales totaled $840,000 for the year, variable sellingexpensestotaled $60,000, and fixed selling andadministrative expensestotaled $180,000. There were no unitsin the beginning inventory.Assume that direct labor is avarialbe cost.


Under variable costing, the company's net operating incomeforthe year would be:

a) $42,000 higher than under absorption costing

b) $30,000 higher than under absorption costing

c) $30,000 lower than under absorption costing

d) $42,000 lower than under absorption costing

Diego Company manufactures one product that is sold for $73 perunit in two geographic regions—the East and West regions. Thefollowing information pertains to the company’s first year ofoperations in which it produced 44,000 units and sold 39,000units.

Variable costs per unit: Manufacturing: Direct materials $ 23Direct labor $ 16 Variable manufacturing overhead $ 2 Variableselling and administrative $ 4 Fixed costs per year: Fixedmanufacturing overhead $ 748,000 Fixed selling and administrativeexpenses $ 400,000

The company sold 29,000 units in the East region and 10,000units in the West region. It determined that $180,000 of its fixedselling and administrative expenses is traceable to the Westregion, $130,000 is traceable to the East region, and the remaining$90,000 is a common fixed cost. The company will continue to incurthe total amount of its fixed manufacturing overhead costs as longas it continues to produce any amount of its only product.

What is the company’s net operating income (loss) underabsorption costing? 7. What is the amount of the difference betweenthe variable costing and absorption costing net operating incomes(losses)? Difference of Variable Costing and Absorption Costing NetOperating Incomes Variable costing net operating income (loss)Absorption costing net operating income (loss) Add: Fixedmanufacturing overhead cost deferred in inventory under absorptioncosting Add: Fixed manufacturing overhead cost released frominventory under absorption costing Deduct: Fixed manufacturingoverhead cost deferred in inventory under absorption costingDeduct: Fixed manufacturing overhead cost released from inventoryunder absorption costing which one? 8. What is the company’sbreak-even point in unit sales? 9. If the sales volumes in the Eastand West regions had been reversed, what would be the company’soverall break-even point in unit sales? 10. What would have beenthe company’s variable costing net operating income (loss) if ithad produced and sold 39,000 units? 11. What would have been thecompany’s absorption costing net operating income (loss) if it hadproduced and sold 39,000 units? 12. If the company produces 5,000fewer units than it sells in its second year of operations, willabsorption costing net operating income be higher or lower thanvariable costing net operating income in Year 2? Higher or Lower13. Prepare a contribution format segmented income statement thatincludes a Total column and columns for the East and West regions.Income Statement Total Company East West 0 0 $0

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