ACTG 360

Chapter 9A Homework
9-16
1.
(a) Ending Inventory April =500 – 350 = 150
Ending Inventory May = 150 + 400 – 520 = 30

Apr-11 May-11
$12,480,00
Revenues ($24,000 × 350; $24,000 × 520) $8,400,000 0
Variable costs

Beginning inventory 0 1,500,000

Variable manufacturing costs 5,000,000 4,000,000
Cost of goods available for sale 5,000,000 5,500,000
Deduct ending inventory ($10,000 × 150; $10,000
× 30) -1,500,000 -300,000
Variable cost of goods sold 3,500,000 5,200,000
Variable operating costs ($3,000 × 350; $3,000 ×
520) 1,050,000 1,560,000
Total variable costs 4,550,000 6,760,000
Contribution margin 3,850,000 5,720,000
Fixed costs
Fixed manufacturing costs 2,000,000 2,000,000
Fixed operating costs 600,000 600,000
Total fixed costs 2,600,000 2,600,000
Operating income $1,250,000 $3,120,000

(b)
Budgeted fixed manufacturing cost per unit = Budgeted fixed manufacturing costs/
Budgeted production = $2,000,000/500 = $4,000

Budgeted total manufacturing cost per unit = Budgeted fixed manufacturing cost per unit
+ Budgeted variable manufacturing cost per unit = $4,000 + $10,000 = $14,000

Apr-11 May-11
 $12,480,00
Revenues ($24,000 × 350; $24,000 × 520) $8,400,000 0
Cost of goods sold

Beginning inventory 0 2,100,000

Variable manufacturing costs 5,000,000 4,000,000
Allocated fixed manufacturing costs (4,000 × 500; $4,000 × 400) 2,000,000 1,600,000
Cost of goods available for sale 7,000,000 7,700,000
Deduct ending inventory ($14,000 × 150; $14,000 × 30) -2,100,000 -420,000
Adjustment for production-volume variance ($2,000,000 – $2,000,000; $2,000,000
– $1,600,000) 0 400,000
Cost of goods sold 4,900,000 7,680,000
Gross margin 3,500,000 4,800,000
Operating costs
Variable operating costs ($3,000 × 350; $3,000 × 520) 1,050,000 1,560,000
Fixed operating costs 600,000 600,000
Total operating costs 1,650,000 2,160,000
Operating income $1,850,000 $2,640,000

9-20
1.
2012 Production = 2012 Sales + Ending Inventory - Beginning Inventory = 345,400 +
34,500 – 85,000 = 294,900 units

Income Statement for the Zwatch Company, Variable Costing

for the Year Ended December 31, 2012

Revenues ($22 × 345,400) $7,598,800

Variable costs
Beginning inventory ($5.10 × 85,000) $433,500
Variable manufacturing costs ($5.10 × 294,900) 1,503,990
Cost of goods available for sale 1,937,490
Deduct ending inventory ($5.10 × 34,500) (175,950)
Variable cost of goods sold 1,761,540
Variable operating costs ($1.10 × 345,400) 379,940
Total variable costs (2,141,480)
Contribution margin 5,457,320
Fixed costs
1,440,00
Fixed manufacturing costs 0
Fixed operating costs 1,080,000
Total fixed costs (2,520,000)
Operating income $2,937,320

Fixed manufacturing overhead allocation rate = Fixed manufacturing overhead/Denominator

level machine-hours = $1,440,000/6,000 = $240 per machine-hour
 Fixed manufacturing overhead allocation rate per unit = Fixed manufacturing overhead
allocation rate/standard production rate = $240/50 = $4.80 per unit

Production volume variance = [(6,000 hours × 50) – 294,900] × $4.80 = $24,480

Income Statement for the Zwatch Company, Absorption Costing

for the Year Ended December 31, 2012

Revenues ($22 × 345,400) $7,598,800

Cost of goods sold
Beginning inventory (($5.10 + $4.80) × 85,000) $ 841,500
Variable manufacturing costs ($5.10 × 294,900) 1,503,990
Allocated fixed manufacturing costs ($4.80 × 294,900) 1,415,520
Cost of goods available for sale $3,761,010
Deduct ending inventory ((5.10 + $4.80) × 34,500) (341,550)
Adjustment for production-volume variance 24,480 U
Cost of goods sold (3,443,940)
Gross margin 4,154,860
Operating costs
Variable operating costs ($1.10 × 345,400) $ 379,940
Fixed operating costs 1,080,000
Total operating costs (1,459,940)
Operating income $2,694,920

2. Under variable costing: 2,937,320/7,598,800 = 38.7%

Under absorption costing: 2,694,920/7,598,800 = 35.5%

3. This is because of fixed manufacturing overhead that becomes the part of inventory
costs under absorption costing system. In addition, the Zwatch’ case is that sale is
higher than production (operating income using variable costing is higher than
operating income calculated using absorption costing).