Exam 19: Variable Costing and Performance Reporting

On a contribution margin income statement,expenses are grouped according to _______________.

Decko Industries reported the following monthly data: Units produced 52,000 units Sales price \ 33 per unit Direct materials \ 1.50 per unit Direct labor \ 2.50 per unit Variable overhead \ 3.50 per unit Fixed overhead \ 234.000 in total What is the company's contribution margin for this month if 50,000 units were sold?

A company normally sells a product for $25 per unit.Variable per unit costs for this product are: $3 direct materials,$5 direct labor,and $2 variable overhead.The company is currently operating at 100% of capacity producing 30,000 units per year.Total fixed costs are $75,000 per year.The company should accept a special order for 1,000 units which would be sold for $13 per unit because the special order price exceeds variable costs.

When units produced exceed the units sold,income under absorption costing is higher than income under variable costing.

Digby Company manufactured and sold 37,000 units of its product at a price of $93 per unit.Total variable cost per unit is $60,consisting of $58 in variable production cost and $2 in variable selling and administrative cost.Fixed costs of manufacturing are $350,000. a.Compute the manufacturing margin for the company under variable costing. b.Compute the contribution margin based on this data. c.Compute the gross margin under absorption costing.

________________________ is a costing method that includes all manufacturing costs in unit product costs.

Stonehenge Inc.,a manufacturer of landscaping blocks,began operations on April 1 of the current year.During this time,the company produced 750,000 units and sold 720,000 units at a sales price of $9 per unit.Cost information for this period is shown in the following table: Production costs Direct materials \ 1.80 per unit Direct labor \ .30 per unit Variable overhead \ 495,000 in tota Fixed overhead \ 450,000 in total Nonproduction costs Variable selling and administrative \1 8,000 in total Fixed selling and administrative \5 3,000 in total a.Prepare Stonehenge's December 31 income statement for the current year under absorption costing. b.Prepare Stonehenge's December 31 income statement for the current year under variable costing.

Wrap-It Company,a manufacturer of wrapping paper,began operations on June 1 of the current year.During this time,the company produced 370,000 units and sold 310,000 units at a sales price of $50 per unit.Cost information for this period is shown in the following table: Production costs Direct materials \ 2.00 per unit Direct labor \ .80 per unit Variable overhead \ 814,000 in total Fixed overhead \ 481,000 in total Non-production costs Variable selling and administrative \ 78,000 in total Fixed selling and administrative \ 210,000 in total a.Prepare Wrap-It's December 31^t income statement for the current year under absorption costing. b.Prepare Wrap-It's December 31 income statement for the current year under variable costing.

Magenta Inc.reports the following information for the current year which is its first year of operations: Units produced this year 750,000 units Units sold this year 740,000 units Direct materials \ 18.30 per unit Direct labor \ 14.20 per unit Variable overhead ? in total Fixed overhead \ 4,500,000 in total If the company's cost per unit of finished goods using absorption costing is $39.75,what is total variable overhead?

Contribution margin is another way to refer to gross margin.

A company reports the following information for its first year of operations: Units produced this year 43,000 units Units sold this year 39,000 units Direct materials \ 0.57 per unit Direct labor \ 0.83 per unit Variable overhead \ 26,660 in total Fixed overhead ? in total If the company's cost per unit of finished goods using variable costing is $2.02,what is the amount of total fixed overhead?

A variable costing income statement focuses attention on the relationship between costs and sales that is not evident from the absorption costing format.

A company reports the following information regarding its production cost: Units produced 14,000 units Direct labor \ 13 per unit Direct materials \ 3 per unit Variable overhead ? in total Fixed overhead \ 56,000 in tota Required: Perform the following independent calculations. a.Compute total variable overhead cost if the production cost per unit under variable costing is $73. b.Compute total variable overhead cost if the production cost per unit under absorption costing is $73.

Variable costing treats fixed overhead cost as a period cost.

Match each of the following terms (a)through (j)with the appropriate definitions 1 through 10. (a) Absorption costing (b) Variable costing (c) Contribution margin (d) Contribution format (e) Manufacturing margin (f) Contribution margin ratio (g) Break-even point (h) Product costs (i) Period costs (j) Gross margin _____ (1) Sales less cost of goods sold. _____ (2) A specific number of units sold that produces total income equal to zero. _____ (3) Sales less variable production costs. _____ (4) A costing method that includes all manufacturing costs. _____ (5) Costs that are expensed in the period they are incurred. _____ (6) Sales less variable expenses. _____ (7) A costing method that includes only variable manufacturing costs. _____ (8) Direct labor,direct materials,and manufacturing overhead. _____ (9) An income statement format that focuses on cost behavior. _____(10)Contribution margin divided by sales.

It is not possible to convert reports prepared using variable costing to absorption costing reports.

The data needed for cost-volume-profit analysis is readily available if the income statement is prepared using a contribution format.

To convert variable costing income to absorption costing income,management will need to change the way fixed overhead costs are treated.