# Homework: Variable Cost and Net Income Essay examples

717 Words3 Pages
Homework Week 4
The following information relates to Exercises 5-11 through 5-18:
Summit Manufacturing, Inc. produces snow shovels. The selling price per snow shovel is \$30. There is no beginning inventory.
Costs involved in production are:
Direct material

\$5
Direct labor
\$4
\$3
Total variable manufacturing costs per unit
\$12
Fixed manufacturing overhead cost per year
\$180,000
In addition, the company has fixed selling and administrative costs of \$160,000 per year.

Exercise 5-11.
During the year, Summit produces 50,000 snow shovels and sells 45,000 snow shovels. What is the value of ending inventory using full costing?
Fixed manufacturing overhead per unit: \$3.60
During the year, Summit produces 50,000 snow shovels and sells 45,000 shovels.
What is net income using variable costing?
Net Income Using Variable Costing: \$470,000 (\$1,350,000-\$540,000-\$180,000-\$160,000)

Exercise 5-18.
During the year, Summit produces 50,000 snow shovels and sells 45,000 shovels.
How much fixed manufacturing overhead is in ending inventory under full costing? Compare this amount to the difference in the net incomes calculated in Exercise 5-13.
Fixed Manufacturing Overhead in Ending Inventory: \$18,000 (5,000 units in ending inventory * \$3.60 of fixed manufacturing overhead per unit)

As per Exercise 5-13, the difference in net income between variable costing and full costing is the same amount as the fixed manufacturing overhead in ending inventory, as per Exercise 5-18.

Problem 5-2.
A. 2014:
Profit: \$695,000 (\$225*5,000= \$1,125,000 (Revenue); \$75*5,000=\$375,000 + \$50,000/5,000= \$85 (Unit Cost); \$85*5,000= \$425,000 (COGS); \$1,125,000-\$425,000-\$5,000)
Value of Ending Inventory: \$0 (\$85*0 units in ending inventory)

2015:
Profit: \$703,350 (\$225*5,000=\$1,125,000 (Revenue); \$75*6,000=\$450,000 + \$50,000/6,000= \$83.33 (Unit Cost); \$83.33*5,000= \$416,650 (COGS); \$1,125,000-\$416,650-\$5,000)
Value of Ending Inventory: \$83,330 (\$83.33*1,000 units in ending inventory)

2016:
Profit: \$686,670 (\$225*\$5,000= \$1,125,000 (Revenue); \$75*4,000=\$300,000 + \$50,000/4,000= \$87.50 (Unit Cost); \$87.50*4,000= \$350,000 + \$83,330= \$433,330