1.

value:
10.00 points
Maxwell Company manufactures and sells a single product. The following costs w ere incurred during the
company's first y ear of operations:

Variable costs per unit:

Manufacturing:
Direct materials $18
Direct labor $7
Variable manufacturing overhead $2
Variable selling and administrative $2
Fixed costs per y ear:
Fixed manufac turing ov erhead $ 200,000
Fixed selling and administrative expenses $ 110.000

During the y ear. the company produced 20,000 units and sold 16,000 units. The selling price of the
company's product is $50 per unit.

Required:
1. Assume that the company uses absorption costing:

a. Compute the unit product cost. (Omit the " $" sign in your response.)

Unit product cost 37 1

b. Prepare an income statement for the y ear. (Input all amounts as positive values except losses
which should be indicated by a minus sign. Omit the "$" sign in your response.)

Absorption Cosiing Income Statement

[Sal~ -. 1 $1 800000 1
ICost of goods s~ld -. 1 I 592000 1

IGross margin -. 1 208000 1

ISelling and administrative expenses -. 1 142000 1

INet operating income (loss) -. 1 $1 66000 1

2. Assume that the company uses v ariable costing:

a. Compute the unit product cost. (Omit the"$" sign in your response.)

Unit product cost $J,____2_.7I

b. Prepare an income statement for the y ear. (Input all amounts as positive values except losses
which should be indicated by a minus sign. Omit the "$" sign in your response.)

Variable Costing Income Statement

ISales -. 1 $1 800000 1
Less: Variable expenses
Variable cost of goods sold .. $ 432,000
Variable selling expense .. 32,000 464000 1

IContribution margin -. 1 336000 1

Less: Fixed expenses
Fixed selling and administrative expenses .. 110,000
Fixed manufacturing overhead .. 200,000 310000 1

INet operating income (loss) -. 1 $1 26000 1

3. The company 's controller believes that the company should have set last y ear's selling price at $51
instead of $50 per unit. She estimates the company could have sold 15,000 units at a price of $51 per
unit, thereby increasing the company's gross margin by $2,000 and its net operating income by $4,000.

a. Do y ou think the absorption costing approach is the proper w ay to assess the merits of the
proposed price increase?

O Yes
1!J N0

b. Do y ou think the v ariable costing approach is the proper w ay to assess the merits of the proposed
price inc rease?

1,!) Yes
O No

c. Using the variable costing approach, by how much will profits increase or dec rease if the price
increase in implemented?

[Decrease~ $ l~_ _6_0_00..,..1

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2. value:
10.00 points
CompuDesk, Inc., makes an oak desk specially designed for personal computers. The desk sells for
$200. Data for last y ear's operations follow:

Units in beginning inventory 0

Units produced 10,000
Units sold 9,000
Units in ending inventory 1,000
Variable costs per unit:
Direct materials $ 60
Direct labor 30
Variable manufac turing ov erhead 10
Variable selling and administrative 20
Total variable cost per unit $ 120

Fixed costs:
Fixed manufac turing overhead $300,000
Fixed selling and administrativ e 450,000

Total fixed costs $750,000

Required :
1. Assume that the company uses v ariable costing. Comput e the unit product cost for one computer
desk. (Omit the " $" sign in your response.)

Unit produc t cost $ ._I_ _1_0_,

oI

2. Assume that the company uses v ariable costing. Prepare a contribution format income statement for
the y ear. (Input all amounts as positive values except losses which should be indicated by a
minus sign. Om i t the " $" sign in your response.)

Variable Costing Income Statement

ISales ·I $ ~I_ _
18_00_0_
00~1
Variable exoenses:
Variable cost of goods sold $ 900,000
Variable selling and administrative expense: • 180,000 1080000 1

IContribution margin • I 120000 1

Fixed exn<>nses:
Fixed manufac turing overhead • 300,000
Fixed selling and administrative expenses • 450,000 750000 1

INet operating income (loss) •I $1 -30000 1

3. W hat is the company 's break-ev en point in terms of units sold?

Break-ev en point I
9375 units
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3. value
10.00 points
Shastri Bicycle of Bombay, india, produces an inexpensive, y et ruggeifblcycle for use on the city's
crowded streets that it sells for 500 rupees. (Indian currency is denominated in rupees, denoted by ~.)
Selected data for the company's operations last year follow:

Units in beginning inventoiy 0

Units produced 10.000
Units sold 8.000
Units in ending inventory 2,000
Variable costs per unit:
Direct materials ~ 120
Direct labor ~ 140
Variable manufacturing overhead ~ 50
Variable selling and administrative ~ 20
Fixed costs:
Fixed manufacturing overhead ~ 600,000
Fixed selling and administrative ~ 400,000

Required:
1. Assume that the company uses absorption costing. Compute the unit product cost for one bicycle.
(Omit the"'°' sign in your response.)

Unrt product cost ~ '-- 370

2. Assume that the company uses variable costing. Compute the unit product cost for one bicycle. (Omit
the'" " sign in your response.)

Unit product cost

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· · · ·· · ·· · · {The following information applies to the questions displayed°f)e/Ow}· ·· ··········· ·················································· ······· ·· ·· ·· · · · ·

High Tension Transformers. Inc., manufac tures heavy-<luty transformers for elec trical sw itching stations.
The company uses variable costing for internal management reports and absorption costing for external
reports to shareholders, creditors, and the government. The c ompany has prov ided the following data:

Year 1 Year 2 Year 3

Inv entories:
Beginning (units ) 180 150 160
Ending (units) 150 160 200
Variable costing net operating income $292.400 $269.200 $251,800

The company's fixed manufacturing ovemead per unit was constant at $450 fOf all three years.

4. .we·
10.00 poi nts
Required:
1. Determine each year's absorption costing net operating income. (Amounts to be deducted should be
indicated with a minus sign . Omit the "$" si gn in your response.)
Reconciliation of Variable Costing and Absorption Costing Net Operating Incomes
Year 1 Year2 Year3
•
V ariable costing net operating income $L 2924.QQJ 269200 1 $1 251800 1
Add (deduct) fixed manufac turing overhead deferred in (released from) inv entory
under absorption costing C -13sooJ 4500 1 I 18000 1

Absorption costing net operating income 278900] 273700 1 $1 269800 1

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5. value:
10.00 points
2. In Year 4, the company 's v ariable costing net operating. income ··;;;;,5···$240,200 and its absorption
costing net operating income was $267.200.

a. Did inv entories increase 0< decrease during Year 4?

Decreased
• Increased

b. How much fixed manufacturing ovemead cost was deferred Of released from inventO<Y during Year
4? (Omit the " $" sign In your response.)

Fixed manufacturing overhead cost deterred in

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• inventO<Y during Year 4 $
--- 27000

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6. value:
10.00 points
Amcor, Inc., incurs the follow ing costs to produce and sell a single product.

Variable costs per unit:

Direct materials $10
Direct labor $5
Variable manufacturing ov erhead $2
Variable selling and administrative expenses $4
Fixed costs per y ear:
Fixed manufacturing overhead $ 90,000
Fixed selling and administrative expenses $ 300,000

During the last y ear, 30,000 units w ere produced and 25,000 units w ere sold. The Finished Goods
inventory account at the end of the y ear shows a balance of $85,000 for the 5,000 unsold units.

Required:
1. Determine w hether the company is using absorption costing or v ariable costing to cost units in the
Finished Goods inventory account.

a. Calculate the ending balance in the Finished Goods inv entory account under v ariable costing and
absorption costing. (Omit the " $" sign in your response.)

Ending balance in Finished Good inv entory account under v ariable costing $ 85000
Ending balance in Finished Goods inventory under absorption costing $ 1---1-00-0--00-1

b. W hich costing method is the company using to cost units in the Finished Goods inventory account?

0 Absorption costing
@ Variable costing

2. Assume that the company w ishes to prepare financ ial statements for the y ear to issue to its
stockholders.

a. Is the $85,000 figure for Finished Goods inventory the correc t amount to use on these statements for
external reporting purposes?

0 Yes, because v ariable costing is generally accepted for external reporting.

@ No, because v ariable costing is not generally accepted for external reporting.
O Yes, because absorption costing is generally accepted for external reporting.
0 No, because absorption costing is not generally accepted for external reporting.
b. At w hat dollar amount should the 5,000 units be carried in inv entory for external reporting purposes?
(Omit the " $" sign in your response.)

Finished Goods inv entory balance for external reporting purposes $ ,_I_ _1_00_0_00_,I
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7. value:
10.00 points
·· ·· ·· ·· ·· Michaels Company segments its income statement · into its Easi arid WesiDivlSlons: The · company's
overall sales, contribution margin ratio, and net operating income are $600,000, 50%, and $50,000,
respectively. The West Division's contribution margin and contribution margin ratio are $150,000 and 75%,
respectively. The East Division's segment margin is $70,000. The company has $60,000 of common fixed
costs that cannot be traced to either division.

Required:
Prepare an income statement for Michaels Company that uses the contribution format and is segmented
by divisions. In addition, for the company as a whole and for each segment. show each item on the
segmented income statements as a pe<cent of sales. (lnput all amounts as positive values except
losses which should be indicated by a minus sign. Round your percentage answers to 1 decimal
place. Omit the"$" and "%"signs in your response.)

Divisions
Total Company East West
Amount % Amount % Amount %
f Sales • sl soooool 1001 $ 400000 1001 sl 2000001 1001
f Variable expenses • 3000001 50 I c 2500001 62.5 I I sooool 25 I
@£ntribution margin • 3000001 50 I [ 1sooci0] 37.5 I 1soooo I 75 I
f Traceablefixed expenses • 1900001 31.7 I [ 80000 1 20 1 11 0000 I 55 1

[ferritorial segment margin ..!] 110000 I 18.3 I sC 70000] 17.5 I sl 40000 1 20 1

@ ommon fixed expenses .!] 60000 1 10 1

[H et operating' income (loss) • sl 50000 1 8.3 I

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 [The following infonnation applies to the questions displayed below.]
Shastri Bicy cle of Bombay, India, produces an inexpensive, y et rugged, bicy cle for use on the city 's
crow ded streets that it sells for 500 rupees. (Indian currency is denominated in rupees, denoted by f. )
Selected data for the company 's operations last y ear follow:

Units in beginning inventory 0

Units produced 10,000
Units sold 8,000
Units in ending inv entory 2,000
Variable costs per unit:
Direct materials f 120
Direct labor f 140
Variable manufacturing ov erhead f 50
Variable selling and administrative f 20
Fixed costs:
Fixed manufacturing ov erhead f 600,000
Fixed selling and administrative f 400,000

The absorption costing income statement prepared by the company's accountant for last y ear appears
below:

Sales f 4,000,000
Cost of goods sold 2,960,000

Gross margin 1,040,000

Selling and administrative expense 560,000

Net operating income f 480,000

8. value:
10.00 points
Required:
1. Detem1ine how much of the ending inventory consists of fixed manufacturing ov erhead cost deterred in
inventory to the next period. (Omit the "f" sign in your response.)

Total fixed manufacturing overhead in ending inventory f ._I_ _1_2_

00_00_.I
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9. value:
10.00 points
:f Prepare an income siatemeni !Di ilie year lisin9 varia61e costinii: (ililJlii a1i ;;,:nc;11111s as llosfrive
values except losses which should be indicated by a minus sign. Omit the "f " sign in your
response.)

Variable Costing Income Statement

ISales Tl fl 4000000 1
Variable exoenses:
Variable cost of goods sold T
f 2,480,000
Variable selling and administrative expense: T 160,000 2640000 1

IContribution margin 1360000 1

Fixed ex=nses:
Fixed manufacturing overhead T 600,000
Fixed selling and administrative expenses T 400,000 1000000 1

INet operating income (loss) TI fl 360000 1

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10. value:
10.00 points
Required:
1. Determine how much of the ending inventory consists of fixed manufacturing ov erhead cost deferred in
inv entory to the next period. (Omit the .., .. sign in your response.)

Total fixed manufacturing overhead in ending inv entory f ~I_ _

12_0_
00~
0I
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 11. 10.00 points value:
.............................................................................................................................................................................................................................................................................................................................................................................................................................
2. Prepare an income statement for the y ear using v ariable costing. (Input all amounts as positive
values except losses which should be indicated by a minus sign. Omit the "" " sign in your
response.)

Variable Costing Income Statement

ISales ·I "I 4000000 1
Variable ex""nses:
Variable cost of goods sold ~ 2,480,000
Variable selling and administrative expense: • 160,000 2640000 1

IContribution margin • I 1360000 1

Fixed exoenses:
Fixed manufacturing overhead • 600,000
Fixed selling and administrative expenses • 400,000 1000000 1

INet operating income (loss) • I ~1 360000 1

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12. value:
10.00 points
Required:
1. Determine how much of the ending inventory consists of fixed manufacturing overhead cost deferred in
inventory to the next period. (Omit the "" " sign in your response.)

Total fixed manufac turing ov erhead in ending inv entory ~. !. . __1_2_00_00_.I

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13. 10.00 points value:

..............................................................................................................................................................................................................................................................................................................................................................................................................................
2. Prepare an income statement for the y ear using v ariable costing. (Input all amounts as positive
values except losses which should be indicated by a minus sign. Omit the "~" sign in your
response.)

Variable Costing Income Statement

ISales ·I ~1 4000000 1
Variable expenses:
Variable cost of goods sold ~ 2,480,000
Variable selling and administrative expense: • 160,000 2640000 1

IContribution margin • I 1360000 1

Fixed expenses:
Fixed manufac turing overhead • 600,000
Fixed selling and administrative expenses • 400,000 1000000 1

INet operating income (loss) • I ~1 360000 1

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14. value:
10.00 points
CompuDesk, Inc., makes an oak desk spec ially designed for personal computers. The desk sells for
$200. Data for last y ear's operations follow:

Units in beginning inventory 0

Units produced 10,000
Units sold 9,000
Units in ending inv entory 1,000
Variable costs per unit:
Direct materials $ 60
Direct labor 30
Variable manufacturing overhead 10
Variable selling and administrative 20
Total v ariable cost per unit $ 120

Fixed costs:
Fixed manufacturing overhead $300,000
Fixed selling and administrative 450,000

Total fixed costs $750,000

Required :
1. Assume that the company uses variable costing . Compute the unit product cost for one computer
desk. (Omit the " $" sign in your response.)

Unit product cost $ ._I_ _1_00_.I

2. Assume that the company uses v ariable costing. Prepare a contribution format income statement for
the y ear. (Input all amounts as positive values except losses which should be indicated by a
minus sign. Omit the " $" sign in your response.)

Variable Costing Income St atement

ISales .. , $1 1800000 1
Variable exoenses:
Variable cost of goods sold • $ 900,000
Variable selling and administrative expense: • 180,000 1080000 1

IContribution margin ·I 720000 1

Fixed exoenses:
Fixed selling and administrativ e expenses .. 450,000
Fixed manufacturing ov erhead .. 300,000 750000 1

INet operating income (loss) .. I $1 -30000 1

3. W hat is the company's break-even point in terms of units sold?

Break-even point 9375 j units

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• 14 0 outof140 pomts(10 0%)
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