Exam 7: Variable Costing: a Tool for Management

Data concerning Sonderegger Company's operations last year appear below: Required: a. Prepare an income statement for the year using absorption costing. b. Prepare a contribution format income statement for the year using variable costing. c. Prepare a report reconciling the difference in net operating income between absorption and variable costing for the year.

Bawcutt Company, which has only one product, has provided the following data concerning its most recent month of operations: -What is the unit product cost for the month under absorption costing?

Botwinick Corporation manufactures a variety of products. The following data pertain to the company's operations over the last two years: -What was the absorption costing net operating income this year?

Harris Company produces a single product. Last year, Harris manufactured 17,000 units and sold 13,000 units. Production costs for the year were as follows: Sales were $780,000 for the year, variable selling and administrative expenses were $88,400, and fixed selling and administrative expenses were $170,000. There was no beginning inventory. Assume that direct labor is a variable cost. -Under absorption costing, the carrying value on the balance sheet of the ending inventory for the year would be:

Jarmon Company, which has only one product, has provided the following data concerning its most recent month of operations: The company produces the same number of units every month, although the sales in units vary from month to month. The company's variable costs per unit and total fixed costs have been constant from month to month. -What is the net operating income for the month under absorption costing?

Net operating income is affected by changes in production under both variable costing and absorption costing.

Abdol Company, which has only one product, has provided the following data concerning its most recent month of operations: -What is the net operating income for the month under absorption costing?

Gallager Company, which has only one product, has provided the following data concerning its most recent month of operations: -The total contribution margin for the month under the variable costing approach is:

Ilford Company, which has only one product, has provided the following data concerning its most recent month of operations: -What is the unit product cost for the month under variable costing?

Jarmon Company, which has only one product, has provided the following data concerning its most recent month of operations: The company produces the same number of units every month, although the sales in units vary from month to month. The company's variable costs per unit and total fixed costs have been constant from month to month. -What is the unit product cost for the month under absorption costing?

Faxon Company, which has only one product, has provided the following data concerning its most recent month of operations: -What is the net operating income for the month under variable costing?

When sales exceeds production for a period, absorption costing net operating income will generally be greater than variable costing net operating income.

Schubert Corporation manufactures a variety of products. Variable costing net operating income last year was $59,000 and this year was $70,000. Last year, $31,000 in fixed manufacturing overhead costs were released from inventory under absorption costing. This year, $22,000 in fixed manufacturing overhead costs were deferred in inventory under absorption costing. -What was the absorption costing net operating income this year?

Ilford Company, which has only one product, has provided the following data concerning its most recent month of operations: -What is the net operating income for the month under variable costing?

The Hadfield Company manufactures and sells a unique electronic part. The company's plant is highly automated with low variable and high fixed manufacturing costs. Operating results on an absorption costing basis for the first three years of activity were as follows: Additional information about the company is as follows: - Variable manufacturing costs (direct labor, direct materials, and variable manufacturing overhead) total $3 per unit, and fixed manufacturing overhead costs total $400,000. - Fixed manufacturing costs are applied to units of product on the basis of the number of units produced each year (i.e., a new fixed manufacturing overhead rate is computed each year). - The company uses a FIFO inventory flow assumption. - Variable selling and administrative expenses are $2 per unit sold. Fixed selling and administrative expenses total $100,000. - Production and sales information for the three years is as follows: Required: a. Compute net operating income for each year under the variable costing approach. b. Referring to the absorption costing income statements above, explain why net operating income was higher in Year 2 than in Year 1 under absorption costing, in light of the fact that fewer units were sold in Year 2 than in Year 1. c. Referring again to the absorption costing income statements, explain why the company suffered a loss in Year 3 but reported a profit in Year 1, although the same number of units was sold in each year. d. If the company had used lean production during Year 2 and Year 3 and produced only what could be sold, what would the company's net operating income (loss) have been each year under absorption costing?

During its first year of operations, Holt Manufacturing Company incurred the following costs to produce 200,000 units of its only product: Holt also incurred the following costs in the sale of 180,000 units of product during its first year: Assume that direct labor is a variable cost. -What would be the cost per unit of Holt's finished goods inventory at the end of the first year of operations under the variable costing method?

Bawcutt Company, which has only one product, has provided the following data concerning its most recent month of operations: -What is the unit product cost for the month under variable costing?

Jarmon Company, which has only one product, has provided the following data concerning its most recent month of operations: The company produces the same number of units every month, although the sales in units vary from month to month. The company's variable costs per unit and total fixed costs have been constant from month to month. -What is the unit product cost for the month under variable costing?

Nimocks Inc., which produces a single product, has provided the following data for its most recent month of operation: The company had no beginning or ending inventories. Required: a. Compute the unit product cost under absorption costing. Show your work! b. Compute the unit product cost under variable costing. Show your work!

Lee Company produces a single product. At the end of last year, the company had 30,000 units in its ending inventory. Lee's variable production costs are $10 per unit and its fixed manufacturing overhead costs are $5 per unit every year. The company's net operating income for the year was $12,000 higher under variable costing than under absorption costing. Given these facts, the number of units of product in inventory at the beginning of the year must have been: