During its first year of operations, Snobegon, Inc. (located in Lake Snobegon, Minnesota), produced 40,400 plastic snow scoops. Snow scoops are oversized shovel-type scoops that are used to push snow away. Unit sales were 38,900 scoops. Fixed overhead was applied at $0.75 per unit produced. Fixed overhead was underapplied by $2,800. This fixed overhead variance was closed to Cost of Goods Sold. There was no variable overhead variance. The results of the year's operations are as follows (on an absorption-costing basis): Sales (38,900 units @ $20)
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
During its first year of operations, Snobegon, Inc. (located in Lake Snobegon, Minnesota), produced 40,400 plastic snow scoops. Snow scoops are oversized shovel-type scoops that are used to push snow away. Unit sales were 38,900 scoops. Fixed overhead was applied at $0.75 per unit produced. Fixed overhead was underapplied by $2,800. This fixed overhead variance was closed to Cost of Goods Sold. There was no variable overhead variance. The results of the year's operations are as follows (on an absorption-costing basis):
| Sales (38,900 units @ $20) | $778,000 |
| Less: Cost of goods sold | 547,560 |
| Gross margin | $230,440 |
| Less: Selling and administrative expenses (all fixed) | 185,500 |
| Operating income | $ 44,940 |
Required:
1. Calculate the cost of the firm's ending inventory under absorption costing. Round unit cost to five decimal places. Round your final answer to the nearest dollar. $______
What is the cost of the ending inventory under variable costing? Round unit cost to five decimal places. Round your final answer to the nearest dollar. $_____
2. Prepare a variable-costing income statement. Round the unit cost to five decimal places, when required. Round your final answers to the nearest dollar. Use the rounded values in subsequent computations.
Snobegon, Inc.Variable-Costing Income StatementFor the First Year of Operations|
Sales
|
$______ |
|
Less: Variable cost of goods sold
|
______ |
| Contribution margin | $_____ |
| Less: | |
|
Fixed overhead
|
______ |
|
Fixed selling and administrative expenses
|
_____ |
| Operating income | $_____ |
What is the difference between the two income figures?
$____
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