1

Sales 1,750,000.00
Less variable expenses:
Variable manufacturing cost, 9 per unit 630,000.00
Variable sellling and administrative expenses, 9 per unit 420,000.00
Total variable expenses 1,050,000.00
Contribution Margin 700,000.00
less fixed expenses:
Fixed manufacturing overhead 560,000.00
Fixed selling and administrative expenses 200,000.00
Total fixed expenses 760,000.00
Net operating income (loss) (60,000.00)

2
Beg. Inventory
July 5,000.00
August 20,000.00
September 25,000.00

Fixed Manufacturing Overhead rate =

July
Net operating income (loss) (60,000.00)

Fixed manufacturing overhead coast release from inventory (35,000.00)

Fixed manufacturing overhead coast deferred from inventory 140,000.00

Absorption coasting net operating income ( loss) 45,000.00

3.
A.
Units sold during September 80,000.00
Less: units in inventory at the beg. Of the month 25,000.00
55,000.00

B
Starting with the next quarter, there will be little
variable costing and the income reported under a
C

With no inventories available for deferral of fixed

not be possible to show a profit under absorption c
stated in part above, profits (and losses) will be the
 1,875,000.00 2,000,000.00

675,000.00 720,000.00
450,000.00 480,000.00
1,125,000.00 1,200,000.00
750,000.00 800,000.00

560,000.00 560,000.00
200,000.00 200,000.00
760,000.00 760,000.00
(10,000.00) 40,000.00

Units Produced Units Sold End. Inventory

85,000.00 70,000.00 20,000.00
80,000.00 75,000.00 25,000.00
60,000.00 80,000.00 5,000.00

560,000.00 = 7.00
80,000.00

August September
(10,000.00) 40,000.00

(140,000.00) (175,000.00)

175,000.00 35,000.00
25,000.00 (100,000.00)

g with the next quarter, there will be little or no difference between the income reported under
e costing and the income reported under absorption costing. With no inventories on hand, fixed
o inventories available for deferral of fixed manufacturing overhead costs to other periods, it would
possible to show a profit under absorption costing if sales were less than the break-even level. As
n part above, profits (and losses) will be the same under both costing methods.