Variable Costing Lecture Sheet

1. During May, Kern produced and sold 10,000 units of a product. Manufacturing and selling cost incurred during
May were as follows:
Prime cost

$200,000

Variable Manufacturing Overheads $45,000

Fixed Manufacturing Overheads

$10,000

Variable Selling costs

$5,000

What was the products unit cost under direct and absorption costing?
2. Based on the following information concerning the operations of Gordon for its initial calendar year. There was
no work-in-progress at the year end.
Units produced

10,000

Units sold

9,000

Direct Materials used

$20,000

Direct labour incurred

$10,000

Fixed factory overheads

$12,500

Variable Overheads

$6,000

Fixed S&A

$15,000

Variable S&A

$2,250

Using the data above, what is the value of finished goods under direct and absorption costing? Which of the two
shows the highest profits and by how much.?
3. Waldo company, which produces only one product provides its most current months data as follows:
Selling price

$80

Direct materials per unit

$21

Direct labour per unit

$10

Variable overheads per unit

$3

Variable S&A per unit

$6

Fixed overheads
Fixed S&A

$76,000
$58,000

Units Produced

5,000

Units sold

4,500

Beginning Inventory

Ending Inventory

500

Based on the above data, what is contribution margin, what is profit using variable costing? What is profits using
absorption costing and what is the value of closing inventory using both models?
4. At the end of a companys first year of operations, 2,000 units of inventory are on hand. Variable costs are $100
per unit, and fixed manufacturing costs are $30 per unit. What is the effect on profit if an entity uses absorption
costing rather than variable costing?
5.In its first year of operations, Magna made the following costs when it produced 100,000 units and sold 80,000
units of its products:
Fixed Manufacturing costs
Variable manufacturing costs

$180,000
$160,000

Fixed S&A

$90,000

Variable S& A

40,000

What is the effect on net income if Magna uses marginal costing rather than absorption costing?