Class Notes (837,548)
Canada (510,312)
Administration (2,738)
ADM2341 (180)
Lecture 8

ADM2341 Lecture 8: Chapter 8 (1)
Premium

7 Pages
66 Views
Unlock Document

Department
Administration
Course
ADM2341
Professor
Lamia Chourou
Semester
Winter

Description
Chapter 8 Variable Costing: A Tool for Management Exercise 8-5 (30 minutes) 1. Under variable costing, only the variable manufacturing costs are included in product costs. Direct materials.............................$ 8....... Direct labour..................................10........ Variable manufacturing overhead............ 2 Unit product cost............................$20...... Note that selling and administrative expenses are not treated as product costs; that is, they are not included in the costs that are inventoried. These expenses are always treated as period costs and are charged against the current period’s revenue. 2. The variable costing income statement appears below: Sales (21,500 × $35)............................ $752,500 Variable expenses: Variable cost of goods sold: Beginning inventory....................$.... 0 Add variable manufacturing costs (25,000 units × $20 per unit)........ 500,000 Goods available for sale.................500,000 Less ending inventory (3,500 units × $20 per unit).........................70,000 Variable cost of goods sold*..............430,000 Variable selling and administrative (21,500 units × $4 per unit)............. 86,000 516,000 Contribution margin.............................. 236,500 Fixed expenses: Fixed manufacturing overhead.......... 75,000 Fixed selling and administrative......... 110,000 185,000 Operating profit..................................... $51,500 * The variable cost of goods sold could be computed more simply as: 21,500 units sold × $20 per unit = $430,000. Exercise 8-5 (continued) 3. The break-even point in units sold can be computed using the contribution margin per unit as follows: Selling price per unit...............$35..... Variable product cost per unit........20 Variable selling and admin cost per unit………………………………… …….. 4 Contribution margin per unit........$ 11 Exercise 8-6 (20 minutes) 1. Under absorption costing, all manufacturing costs (variable and fixed) are included in product costs. Direct materials..............................$ 8...... Direct labour..................................10........ Variable manufacturing overhead............ 2 Fixed manufacturing overhead ($75,000 ÷ 25,000 units)......................3 Unit product cost.............................$23..... 2. The absorption costing income statement appears below: Sales (21,500 units × $35 per unit)........... $752,500 Cost of goods sold: Beginning inventory..........................$..... 0 Add cost of goods manufactured (25,000 units × $23 per unit)................575,000 Goods available for sale.......................575,000 Less ending inventory (3,500 units × $23 per unit)..................80,500 494,500 Gross margin............................................. 258,000 Selling and administrative expenses: Variable selling and administrative (21,500 units × $4 per unit)..................86,000 Fixed selling and administrative............. 110,000 196,000 Operating income...................................... $ 62,000 Note: Operating income is larger under absorption costing because the company holds back $10,500 ($3 x 3,500 units) worth of fixed costs in ending inventory.Problem 8-10 (30 minutes) 1. The unit product cost under the variable costing approach would be computed as follows: Direct materials............................$ 8........ Direct labour................................10.......... Variable manufacturing overhead............ 2 Unit product cost...........................$20....... With this figure, the variable costing income statements can be prepared: Year 1 Year 2 Sales..........................................$1,000,000..
More Less

Related notes for ADM2341

Log In


OR

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


OR

By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.


Submit