ACCT 001 Lecture Notes - Lecture 26: European Cooperation In Science And Technology, Income Statement, Total Absorption Costing

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pearjellyfish736

23 Dec 2020

School

College of The Sequoias

Department

Accounting (ACCT)

Course

ACCT 001

Professor

skaff

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Document Summary

The income statement based on a functional classification for a manufacturing organisation follows the traditional format used in financial accounting. Profit computed by following a functional classification is referred to as an absorption- costing profit or full-costing profit because all manufacturing costs are fully assigned to the product. Expenses are segregated according to function and then deducted from revenues to arrive at profit before taxes. Two major functional categories of expense: cost of goods sold and operating expenses. These categories correspond, respectively, to an organisation"s manufacturing and non- manufacturing expenses. Cost of goods sold is the cost of direct materials, direct labour, and overhead attached to the units sold. Cost of goods manufactured: total cost of goods completed during the current period. The only costs assigned to goods completed are the manufacturing costs of direct materials, direct labour, and overhead. The details of this cost assignment are given in a supporting schedule, called the statement of cost of goods manufactured.

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Absorption and Variable Costing Comparisons Peachtree Companymanufactures peach jam. Because of bad weather, its peach crop wassmall. The following data have been gathered for the summer quarterof 2014: Beginning inventory (cases) 0 Cases produced 9,000 Casessold 8,200 Sales price per case $ 60 Direct materials per case $ 8Direct labor per case $ 9 Variable manufacturing overhead per case$ 3 Total fixed manufacturing overhead $ 320,000 Variable sellingand administrative cost per case $ 2 Fixed selling andadministrative cost $ 48,000 (a) Prepare a functional incomestatement for the quarter using absorption costing. (Round answersto the nearest dollar. Do not use negative signs with your answers,EXCEPT if you calculate a net loss.) Peachtree Company Functional(Absorption Costing) Income Statement For the Summer Quarter 2014Sales $Answer Cost of goods sold: Variable costs $Answer Fixedcosts Answer Goods available Answer Ending inventory Answer AnswerGross profit Answer Operating expenses: Variable selling andadministrative $Answer Fixed selling and administrative AnswerAnswer Net income (loss) $Answer (b) Prepare a contribution incomestatement for the quarter using variable costing. (Do not usenegative signs with your answers, EXCEPT if you calculate a netloss.) Peachtree Company Contribution (Variable Costing) IncomeStatement For the Summer Quarter 2014 Sales $Answer Variableexpenses: Manufacturing $Answer Selling and administrative AnswerAnswer Contribution margin Answer Fixed expenses: Manufacturingoverhead $Answer Selling and administrative Answer Answer Netincome (loss) $Answer (c) What is the value of ending inventoryunder absorption costing? (Round answer to the nearest wholenumber.) $Answer (d) What is the value of ending inventory undervariable costing? $Answer (e) The difference in the value of endinginventory in parts (c) and (d) is explained by the followingdifference between absorption and variable costing: Variablecosting treats all manufacturing costs as variable costs whileabsorption costing treats only variable manufacturing costs asvariable costs. Absorption costing treats fixed costs as periodcosts while variable costing treats fixed costs as product costs.Variable costing assigns only variable manufacturing costs toproducts while absorption costing assigns both variable and fixedmanufacturing costs to products. Absorption costing treats allmanufacturing costs as period costs while variable costing treatsonly variable manufacturing costs as period costs. Check Next

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Problem 8-35A (Part Level Submission)

The Daniels Tool & Die Corporation has been in existence for a little over three years. The companyâs sales have been increasing each year as it builds a reputation. The company manufactures dies to its customersâ specifications and therefore uses a job-order cost system. Factory overhead is applied to the jobs based on direct labour hoursâthe absorption-costing (full) method. Overapplied or underapplied overhead is treated as an adjustment to Cost of Goods Sold. The companyâs income statements and other data for the last two years are as follows:

DANIELS TOOL & DIE CORPORATION 2015â2016 Comparative Income Statements
		2015	2016
Sales		$839,800	$1,015,100
Cost of goods sold
	Finished goods, January 1	24,400	17,100
	Cost of goods manufactured	543,000	657,800
	Total available	567,400	674,900
	Finished goods, December 31	17,100	13,400
	Cost of goods sold before overhead adjustment	550,300	661,500
	Underapplied factory overhead	35,000	14,200
Cost of goods sold		585,300	675,700
Gross profit		254,500	339,400
Selling expenses		81,100	94,800
Administrative expenses		69,500	74,800
	Total operating expenses	150,600	169,600
Operating income		$103,900	$169,800

Daniels Tool & Die Corporation Inventory Balances
	January 1, 2015	December 31, 2015	December 31, 2016
Raw material	$21,000	$29,100	$10,300
Work in process	$40,200	$47,000	$63,000
Direct labour hours (used in WIP)	1,320	1,620	2,440
Finished goods	$24,400	$17,100	$13,400
Direct labour hours (used in FG)	1,520	1,060	850

Daniels used the same predetermined overhead rate in applying overhead to its production orders in both 2015 and 2016. The rate was based on the following estimates:

Fixed factory overhead		$24,750
Variable factory overhead		$153,450
Direct labour hours (used in WIP)		24,750
Direct labour costs (used in FG)		$148,500

In 2015 and 2016, the actual direct labour hours used were 20,700 and 23,700, respectively. Raw materials put into production were $291,900 in 2015 and $370,600 in 2016. The actual fixed overhead was $42,700 for 2015 and $28,260 for 2016, and the planned direct labour rate was the direct labour achieved.

For both years, all of the administrative costs were fixed. The variable portion of the selling expenses results from a 5% commission that is paid as a percentage of the sales revenue.

(a)

For the year ended December 31, 2016, prepare a revised income statement for Daniels Tool & Die Corporation using the variable-costing method. (Round answers to 0 decimal places, e.g. 5,275.)

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PROBLEM 6-22 Prepare and Reconcile Variable Costing Statements (L06-1, L06-2, L06-3] Denton Company manufactures and sells a single product. Cost data for the product are given below: Variable costs per unit: Direct materials ..., Direct labor ...... Variable manufacturing overhead .......... Variable selling and administrative ........ Total variable cost per unit .............. Fixed costs per month: Fixed manufacturing overhead ............ Fixed selling and administrative ... Total fixed cost per month ............... ""31 $315,000 245,000 $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 ....... ..... August ....... 17,500 17,500 15,000 20,000 The company's Accounting Department has prepared absorption costing income statements for July and August as presented below: ........ Sales ...... Cost of goods sold .... Gross margin Selling and administrative expenses . . . . . . . . . . Net operating income .......... ......... July $900,000 600,000 300,000 290,000 $ 10,000 August $1,200,000 800,000 400,000 305,000 $ 95,000 Required: 1. Determine the unit product cost under: a. Absorption costing. b. 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. 4. The company's Accounting Department has determined the company's break-even point to be 16,000 units per month, computed as follows: Fixed cost per month $560,000 16,000 units Unit contribution margin $35 per unit "I'm confused," said the president. "The accounting people say that our break-even point is 16,000 units per month, but we sold only 15,000 units in July, and the income statement they prepared shows a $10,000 profit for that month. Either the income statement is wrong or the break-even point is wrong." Prepare a brief memo for the president, explaining what happened on the July absorption costing income statement.

ACCT 001 Lecture Notes - Lecture 26: European Cooperation In Science And Technology, Income Statement, Total Absorption Costing

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Related Questions

Problem 8-35A (Part Level Submission)

(a)