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Concept introduction:
Variable Costing Income Statement:
In Variable Costing Income Statement, all the variable expenses are subtracted from total Income to derive the contribution margin and then all fixed expenses are subtracted to arrive at the net profit or loss.
Absorption Costing Income Statement:
Absorption costing is the traditional method of Income statement preparation. Under absorption costing both variable and fixed costs are considered as cost of production and allocated to the units lying in the finished stock inventory.
Requirement 1:
To prepare:
The variable costing Income statement.
Concept introduction:
Variable Costing Income Statement:
In Variable Costing Income Statement, all the variable expenses are subtracted from total Income to derive the contribution margin and then all fixed expenses are subtracted to arrive at the net profit or loss.
Absorption Costing Income Statement:
Absorption costing is the traditional method of Income statement preparation. Under absorption costing both variable and fixed costs are considered as cost of production and allocated to the units lying in the finished stock inventory.
Requirement 2:
To prepare:
The absorption costing Income statement.
Concept introduction:
Variable Costing Income Statement:
In Variable Costing Income Statement, all the variable expenses are subtracted from total Income to derive the contribution margin and then all fixed expenses are subtracted to arrive at the net profit or loss.
Absorption Costing Income Statement:
Absorption costing is the traditional method of Income statement preparation. Under absorption costing both variable and fixed costs are considered as cost of production and allocated to the units lying in the finished stock inventory.
Requirement 3:
To explain:
The difference in income between Variable costing and absorption Costing Income Statement.
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Chapter 6 Solutions
MANAGERIAL ACCOUNTING FUND. W/CONNECT
- Pattison Products, Inc., began operations in October and manufactured 40,000 units during the month with the following unit costs: Fixed overhead per unit = 280,000/40,000 units produced = 7. Total fixed factory overhead is 280,000 per month. During October, 38,400 units were sold at a price of 24, and fixed marketing and administrative expenses were 130,500. Required: 1. Calculate the cost of each unit using absorption costing. 2. How many units remain in ending inventory? What is the cost of ending inventory using absorption costing? 3. Prepare an absorption-costing income statement for Pattison Products, Inc., for the month of October. 4. What if November production was 40,000 units, costs were stable, and sales were 41,000 units? What is the cost of ending inventory? What is operating income for November?arrow_forwardLast year, Orsen Company produced 25,000 juicers and sold 26,500 juicers for 60 each. The actual variable unit cost is as follows: Fixed overhead was 320,000. Fixed selling expenses consisted of advertising copayments totaling 110,000. Fixed administrative expenses were 236,000. There were no beginning and ending work-in-process inventories. Beginning finished goods inventory was 148,000 for 4,000 juicers. The value of ending inventory reported on the financial statements was a. 55,500 b. 92,500 c. 66,500 d. 39,900arrow_forwardLast year, Orsen Company produced 25,000 juicers and sold 26,500 juicers for 60 each. The actual variable unit cost is as follows: Fixed overhead was 320,000. Fixed selling expenses consisted of advertising copayments totaling 110,000. Fixed administrative expenses were 236,000. There were no beginning and ending work-in-process inventories. Beginning finished goods inventory was 148,000 for 4,000 juicers. The value of ending inventory reported on the financial statements was Refer to the information in 2.24. The gross margin percentage for last year was a. 12.57% b. 55.67% c. 28.95% d. 38.33%arrow_forward
- Orinder Company provided the following information for the last calendar year: During the year, direct materials purchases amounted to 275,800, direct labor cost was 153,000, and overhead cost was 267,300. There were 25,000 units produced. Unit manufacturing cost (rounded to the nearest cent) is a. 28.40 b. 27.98 c. 34.95 d. 27.55arrow_forwardKildeer Company makes easels for artists. During the last calendar year, a total of 30,000 easels were made, and 31,000 were sold for 52 each. The actual unit cost is as follows: The selling expenses consisted of a commission of 1.30 per unit sold and advertising copayments totaling 95,000. Administrative expenses, all fixed, equaled 183,000. There were no beginning and ending work-in-process inventories. Beginning finished goods inventory was 132,600 for 3,400 easels. Required: 1. Calculate the number and the dollar value of easels in ending finished goods inventory. 2. Prepare a cost of goods sold statement. 3. Prepare an absorption-costing income statement. Add a column for percentage of sales.arrow_forwardEllerson Company provided the following information for the last calendar year: During the year, direct materials purchases amounted to 278,000, direct labor cost was 189,000, and overhead cost was 523,000. During the year, 100,000 units were completed. Required: 1. Calculate the total cost of direct materials used in production. 2. Calculate the cost of goods manufactured. Calculate the unit manufacturing cost. 3. Of the unit manufacturing cost calculated in Requirement 2, 2.70 is direct materials and 5.30 is overhead. What is the prime cost per unit? Conversion cost per unit?arrow_forward
- Total Pops data show the following information: New machinery will be added in April. This machine will reduce the labor required per unit and increase the labor rate for those employees qualified to operate the machinery. Finished goods inventory is required to be 20% of the next months requirements. Direct material requires 2 pounds per unit at a cost of $3 per pound. The ending inventory required for direct materials is 15% of the next months needs. In January, the beginning inventory is 3,000 units of finished goods and 4,470 pounds of material. Prepare a production budget, direct materials budget, and direct labor budget for the first quarter of the year.arrow_forwardMill Corporation had the following unit costs for the recent calendar year: Inventory for Mills sole product totaled 6,000 units on January 1 and 5,200 units on December 31. When compared to variable costing income, Mills absorption costing income is: a. 2,400 lower. b. 2,400 higher. c. 6,800 lower. d. 6,800 higher.arrow_forwardEvans Company had total sales of 3,000,000 for fiscal 20x5. The costs of quality-related activities are given below. Required: 1. Prepare a quality cost report, classifying costs by category and expressing each category as a percentage of sales. What message does the cost report provide? 2. Prepare a bar graph and pie chart that illustrate each categorys contribution to total quality costs. Comment on the significance of the distribution. 3. What if, five years from now, quality costs are 7.5 percent of sales, with control costs being 65 percent of the total quality costs? What would your conclusion be?arrow_forward
- Wyandotte Company provided the following information for the last calendar year: During the year, direct materials purchases amounted to 256,900, direct labor cost was 176,000, and overhead cost was 308,400. There were 40,000 units produced. Required: 1. Calculate the total cost of direct materials used in production. 2. Calculate the cost of goods manufactured. Calculate the unit manufacturing cost. 3. Of the unit manufacturing cost calculated in Requirement 2, 6.62 is direct materials and 7.71 is overhead. What is the prime cost per unit? Conversion cost per unit?arrow_forwardCost of goods sold Pine Creek Company completed 200,000 units during the year at a cost of 3,000,000. The beginning finished goods inventory was 25,000 units at 310,000. Determine the cost of goods sold for 210,000 units, assuming a FIFO cost flow.arrow_forwardIncome Statements under Absorption and Variable Costing In the coming year, Kalling Company expects to sell 28,700 units at 32 each. Kallings controller provided the following information for the coming year: Required: 1. Calculate the cost of one unit of product under absorption costing. 2. Calculate the cost of one unit of product under variable costing. 3. Calculate operating income under absorption costing for next year. 4. Calculate operating income under variable costing for next year.arrow_forward
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