Fixed Cost per unit = 20,000 / 5,000 = 4

Variable Cost per unit = 4

Cost of Production per Unit/Cost of Sale = 4 + 4 = 8

Net income under variable costing

Sales 57,000
Variable Cost (4 + 2) x 3,800 22,800
Contribution Margin 34,200
Operating Expenses - Fixed Cost
Variable Manufacturing Cost -20,000
Variable Selling and Admin -14,000
Net income 200

Reconciling the diff. bet absorption income and variable costing income
5,000 - 200 = 4,800
Produce 5,000 unit but only sell 3,800 = 1,200 units (inventory)
Inventory end x fixed cost = 1,200 x 4 = 4,800
Manufacturing Cost (Variable) = 6 + 9 + 4.50 = 19.50
Fixed Manufacturing Cost per unit = 180,000 / 50,000 = 3.6
Total manufacturing cost per unit (Absorption) = 6 + 9 + 4.50 + (180,000/50,000) = 23.10

Net income under absorption costing

Sales (40,000 x 33) 1,320,000
COGS (23.10 x 40,000) 924,000
Gross Profit 396,000
Operating Expense
Fixed Selling 60,000
Variable Selling (3 x 40,000) 120,000
Net income 216,000

Net income under variable costing

Sales 1,320,000
Variable Cost (19.50 + 3) x 40,000 900,000
Contribution Margin 420,000
Operating Expenses - Fixed Cost
fixed Manufacturing Cost -180,000
Fixed Selling and Admin -60,000
Net income 180,000

Reconciling the diff. bet absorption income and variable costing income
219k - 180k = 36,000
Inventory end (50k-40k) x fixed cost = 10,000 x 3.6 = 36,000
Assignment #2 - Absorption/Variable Costing
a. Compute the cost per unit under both absorption and variable costing.
Absorption Costing Variable
Costing
Direct Material 2 2
Direct Labor ((24/60) x 15) 6 6
Variable manufacturing overhead 4 4
Fixed manufacturing overhead (132,000/30,000) 4.4 0
Product cost per unit 16.4 12

b. Compute the ending inventories under both absorption and variable costing.
Absorption Costing:
Ending Inventory (30,000 - 28,000) x 16.4 $32,800.00

Variable Costing:
Ending Inventory (30,000 - 28,000) x 12 $24,000.00

c. Compute operating income under both absorption and variable costing.

Net income under absorption costing
Sales (28,000 x 20) 560,000.00
COGS (16.4 x 28,000) 459,200.00
Gross Profit 100,800.00
Operating Expense
Fixed selling and administrative 40,000.00
Variable Selling (2 x 28,000) 56,000.00
Net income $ 4,800.00

Net income under variable costing

Sales (28,000 x 20) 560,000.00
Variable Cost (12 + 2) x 28,000 392,000.00
Contribution Margin 168,000.00
Operating Expenses - Fixed Cost
Fixed Manufacturing Overhead 132,000.00
Fixed selling and administrative 40,000.00
Net income $ (4,000.00)

Fixed Cost (132,000/30,000) 4.4

Reconciliation (30,000 - 28,000) x 4.4 $ 8,800.00
or
Reconciliation (4,800 - (-4,000)) $ 8,800.00

a. Determine operating income using the variable-costing approach.

Net income under variable costing
Sales (24,000 x 50) 1,200,000.00
Variable Cost (525,000/30,000) x 24,000 420,000.00
Variable Nonmanufacturing Cost 144,800.00
Contribution Margin 635,200.00
Operating Expenses - Fixed Cost
Fixed Manufacturing Costs 372,000.00
Fixed selling 77,400.00
Net income $ 185,800.00

b. Determine operating income using the absorption-costing approach.

Net income under absorption costing
Sales (24,000 x 50) 1,200,000.00
COGS ((372,000/30,000) x 24,000)) + (17.5 x 24,000) 717,600.00 17.5
Gross Profit 482,400.00
Operating Expense
Fixed selling 77,400.00
Variable Selling 144,800.00
Net income $ 260,200.00

c. Explain why operating income is not the same under the two approaches.
Fixed Cost (372,000/30,000) 12.4
Reconciliation (30,000 - 24,000) x 12.4 $ 74,400.00
or
Reconciliation (260,000 - 185,800) $ 74,200.00
 Cost Activity Cost/Unit a.
Purchase Order 150,000 15,000 10 Purchase Order
Receiving Report 175,000 10,000 17.5 Receiving Report
Phone Calls 225,000 50,000 4.5 Phone Calls

Total Cost
b. No. of Products Manufactured
Cost per unit

Smithson Company Function Rate/Hour Hours Total

Product A OH Cost 1 10 2 20
2 7 1 7
3 18 6 108
135

Product A OH Cost 1 10 1 10
2 7 8 56
3 18 1 18
84

Compute OH based on DL hours

Hours Prod Units Total Hours Total OH
Prod A 4 800 3200 164210.53
Prod B 1.5 8000 12000 615789.47
15200 780000.00
 Machine Setups Inspection
Dining Chairs 200/800 x 48000 12000 250/720 x 72000 25000

Tables 600/800 x 48000 36000 470/720 x 72000 47000

48000 72000

Purchasing 380 3 1140

Storing 2 4000 8000
Machining 100 60 6000
Supervision 5 40 200
Total FO 15340 DL = 40 x 30 = 1200

Total Manufacturing Cost = DM + DL + FO 35540

Cubby Mooth
Material Handling 400/1000 x 60000 24000 36000
Machine Setup 200/500 x 50000 20000 30000
Quality Inspection 200/600 x 57000 19000 38000
63000 104000
 Prod A Cost Prod A Cost
50 500 100 1000
150 2625 400 7000
200 900 350 1575

4025 9575
Products Manufactured 1500 3000
2.68 3.19

Units Produced

800 108000

8000 672000

Total OH Cost 780000

OH Cost per unit Prime Cost FOH Product Cost

205.26 35 205.26 240.26
76.97 22 76.97 98.97
OH Cost DL Hours
37000 2600/5000 x 120000 62400

83000 2400/5000 x 120000 57600

120000 120000
16700
Assignment #3

Overhead Rates Activity Total Overhead

Researching Legal Issues ($31,500/900) $35.00 660 $23,100.00
Meeting with clients ($1,760,000/8,800) $200.00 10,000 $2,000,000.00
Preparing legal documents ($480,000/30,000) $16.00 25,000 $400,000.00
$2,423,100.00

A. $400,000 / (10,000 + 40,000) = $8

B. ($8 x 10,000) / 200,000 = $0.40
C. ($8 x 40,000) / 2,000,000 = $0.16
D. $400,000 / (10,000 + 70,000) = $5
E. $.47 + $.40 = $0.87
F. ($5 x 10,000) / 200,000 = $0.25 OH cost per unit
$.47 + $.25 = $0.72

A. $220,000 / (2,000 + 6,000) = $27.50

B. $112,000 / (8 + 32) = $2,800
C. $87,000 / (500 + 1,500) = $43.50
D. Prime Cost $40.00
Maintenance ($27.50 x 2,000) / 20,000 2.75
Setups ($2,800 x 8) / 20,000 1.12
Purchasing (43.50 x 500) / 20,000 1.09
Unit cost of Basic Model $44.96
E. Prime Cost $80.00
Maintenance ($27.50 x 6,000) / 10,000 16.5
Setups ($2,800 x 32) / 10,000 8.96
Purchasing (43.50 x 1,500) / 10,000 6.53
Unit cost of Basic Model $111.99
A. Consumption Ratios
Deluxe Standard
Cutting (2,200/3,500) ; (1,300/3,500) 0.63 0.37
Assembling (1,150/2,130) ; (980/2,130) 0.54 0.46
Inspecting (800/1,300) ; (500/1,300) 0.62 0.38
Reworking (20/55) ; (35/55) 0.36 0.64

B. Activity Rates
Cutting (96,000/3,500) 27.43
Assembling (42,000/2,130) 19.72
Inspecting (15,000/1,300) 11.54
Reworking (8,000/55) 145.45

C. Unit Cost
Deluxe Standard
Units Produced 500 700
Cutting 120.69 50.94
Assembling 45.35 27.61
Inspecting 18.46 8.24
Reworking 5.82 7.27
Cost per unit 190.32 94.06