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ACCTG322 Chapter Notes - Chapter 8: Total Absorption Costing, Earnings Before Interest And Taxes, Sorption

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School
University of Alberta
Department
Accounting
Course
ACCTG322
Professor
Trish Stringer

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Document Summary

Exercise 8-9: sales (40,000 units . 75 per unit) . Variable cost of goods sold (40,000 units per unit*) Variable selling and administrative expenses (40,000 units per unit) . : the difference in operating income can be explained by the ,000 in fixed manufacturing overhead deferred in inventory under the absorption costing method: Add: fixed manufacturing overhead cost deferred in inventory under ab- sorption costing: 10,000 units per unit in fixed manufacturing over- head cost . Problem 8-10: the unit product cost under the variable costing approach would be computed as follows: With this figure, the variable costing income statements can be prepared: Variable cost of goods sold @ per unit Operating income (loss) : variable costing operating income (loss) Add: fixed manufacturing overhead cost deferred in in- ventory under absorption costing (5,000 units per unit) Deduct: fixed manufacturing overhead cost released from inventory under absorption costing (5,000 units. Fixed manufacturing overhead (640,000 40,000 units)

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Related Questions

EXERCISE 6-12 Variable Costing Income Statement; Reconciliation (L06-2, L06-3] Whitman Company has just completed its first year of operations. The company's absorption cost- ing income statement for the year appears below: Whitman Company Income Statement Sales (35,000 units X $25 per unit) .... Cost of goods sold (35,000 units x $16 per unit) ...... Gross margin ............ Selling and administrative expenses .......... Net operating income....... ... $875,000 560,000 315,000 280,000 $ 35,000 The company's selling and administrative expenses consist of $210,000 per year in fixed expenses and $2 per unit sold in variable expenses. The $16 per unit product cost given above is computed as follows: Direct materials ........... Direct labor .............. Variable manufacturing overhead ........ Fixed manufacturing overhead ($160,000 = 40,000 units) ... Absorption costing unit product cost .... BISON Required: 1. Redo the company's income statement in the contribution format using variable costing. 2. Reconcile any difference between the net operating income on your variable costing income statement and the net operating income on the absorption costing income statement above.

Walsh Company manufactures and sells one product. The following information pertains to each of the company’s first two years of operations:

Variable costs per unit:
Manufacturing:
Direct materials $ 26
Direct labor $ 16
Variable manufacturing overhead $ 6
Variable selling and administrative $ 5
Fixed costs per year:
Fixed manufacturing overhead $ 320,000
Fixed selling and administrative expenses $ 50,000

During its first year of operations, Walsh produced 50,000 units and sold 40,000 units. During its second year of operations, it produced 40,000 units and sold 50,000 units. The selling price of the company’s product is $57 per unit.

Required:

1. Assume the company uses variable costing:

a. Compute the unit product cost for Year 1 and Year 2.

b. Prepare an income statement for Year 1 and Year 2.

2. Assume the company uses absorption costing:

a. Compute the unit product cost for Year 1 and Year 2.

b. Prepare an income statement for Year 1 and Year 2.

3. Reconcile the difference between variable costing and absorption costing net operating income in Year 1.

EXERCISE 6-9 Variable and Absorption Costing Unit Product Costs and Income Statements [L06-1, L06-2, L06-3] Walsh Company manufactures and sells one product. The following information pertains to each of the company's first two years of operations: $25 $15 Variable costs per unit: Manufacturing: Direct materials Direct labor ..... Variable manufacturing overhead ...... Variable selling and administrative ........ Fixed costs per year: Fixed manufacturing overhead ................. Fixed selling and administrative expenses ........ $5 $250,000 $80,000 During its first year of operations, Walsh produced 50,000 units and sold 40,000 units. During its second year of operations, it produced 40,000 units and sold 50,000 units. The selling price of the company's product is $60 per unit. Required: 1. Assume the company uses variable costing: a. Compute the unit product cost for Year 1 and Year 2. b. Prepare an income statement for Year 1 and Year 2. 2. Assume the company uses absorption costing: a. Compute the unit product cost for Year 1 and Year 2. b. Prepare an income statement for Year 1 and Year 2. 3. Explain the difference between variable costing and absorption costing net operating income in Year 1. Also, explain why the two net operating income figures differ in Year 2.