Week 7 HWM
Week 7 HWM
Week 7 HWM
streets that it sells for 500 rupees. (Indian currency is denominated in rupees, denoted by R.) Selected data for
the company's operations last year follow:
R ____________
Fixed costs:
Requirement 1:
Assume that the company uses absorption costing. Compute the unit product cost for one bicycle.
"R" sign in your response.)
Unit product cost
Shastri Bicycle of Bombay, India, produces an inexpensive, yet rugged, bicycle for use on the city's crowded
streets that it sells for 500 rupees. (Indian currency is denominated in rupees, denoted by R.) Selected data
for the company's operations last year follow:
Units produced
10,000
Units sold
8,000
2,000
120
Direct labor
140
50
20
Fixed costs:
Fixed manufacturing overhead
R 600,000
R 400,000
An absorption costing income statement prepared by the company's accountant appears below:
4,000,00
0
3,700,00
0
3,700,00
0
per unit)
2,960,00
0
740,000
1,040,00
0
Gross margin
Selling and administrative expenses:
Variable selling and administrative
160,000
400,000
560,000
R
480,000
Requirement 1:
Determine how much of the ending inventory of R740,000 above consists of fixed manufacturing overhead
cost deferred in inventory to the next period. (Omit the "R" sign in your response.)
Fixed manufacturing overhead
R ____________
Requirement 2:
Prepare an income statement for the year using the variable costing method. (Leave no cells blank - be
certain to enter "0" wherever required. Omit the "R" sign in your response.)
__________
R ____________
Variable expenses:
Variable cost of goods sold:
Beginning inventory
R ____________
__________: __________
____________
__________
____________
__________: __________
____________
__________
____________
__________
____________
Contribution margin
____________
____________
Fixed expenses:
__________
____________
__________
____________
__________
____________
R ____________
High Tension Transformers, Inc., manufactures heavy-duty transformers for electrical switching stations. The company
uses variable costing for internal management reports and absorption costing for external reports to shareholders,
creditors, and the government. The company has provided the following data:
Year 1
Year 2
Year 3
Inventories:
Beginning (units)
180
150
160
Ending (units)
150
160
200
292,400 $
269,200 $
251,800
The company's fixed manufacturing overhead per unit was constant at $450 for all three years.
Requirement 1:
Determine each year's absorption costing net operating income. (Omit the "$" sign in your response.)
Year 1
Absorption costing net operating income
Year 2
Year 3
Requirement 2:
In Year 4, the company's variable costing net operating income was $240,200 and its absorption costing net
operating income was $267,200.
(a) Did inventories increase or decrease during Year 4?
(a) Decrease
(b) Increase
(b) How much fixed manufacturing overhead cost was deferred or released from inventory during Year 4? (Omit
the "$" sign in your response.)
__________ fixed manufacturing overhead cost
$ ____________
The questions below pertain to two different scenarios involving a manufacturing company. In each scenario, the
cost structure of the company is constant from year to year. Selling prices, unit variable costs, and total fixed
costs are the same in every year. However, unit sales and/or unit production levels may vary from year to year.
Requirement 1:
Consider the following data for scenario A and for each year, indicate whether inventories grew or shrank.
Year 1
Year 2
Year 3
16,847 $
16,847 $
16,847
16,847 $
29,378 $
6,018
Year1
__________
Year2
__________
Year3
__________
Requirement 3:
Given the patterns of net operating income in scenarios A and B above, which costing method, variable costing
or absorption costing, do you believe provides a better reflection of economic reality?
Maxwell Company manufactures and sells a single product. The following costs were incurred during the
company's first year of operations:
18
Direct labor
$ 160,000
$ 110,000
During the year, the company produced 20,000 units and sold 16,000 units. The selling price of the company's
product is $50 per unit.
Rquirement 1:
Assume that the company uses absorption costing:
(a) Compute the unit product cost. (Omit the "$" sign in your response.)
Unit product cost
$ ____________
(b) Prepare an income statement for the year. (Omit the "$" sign in your response.)
__________
$ ____________
$ ____________
____________
__________
____________
__________:__________
____________
____________
__________
____________
__________
____________
____________
____________
__________
____________
__________
____________
$ ____________
Amcor, Inc., incurs the following costs to produce and sell a single product.
10
Direct labor
90,000
300,000
During the last year, 30,000 units were produced and 25,000 units were sold. The Finished Goods inventory
account at the end of the year shows a balance of $85,000 for the 5,000 unsold units.
Requirement 1:
(a) Is the company using absorption costing or variable costing to cost units in the Finished Goods inventory
account?
Absorption Costing
$ ____________
$ ____________
Requirement 2:
Assume that the company wishes to prepare financial statements for the year to issue to its stock-holders.
(a) Is the $85,000 figure for Finished Goods inventory the correct amount to use on these statements for
external reporting purposes?
(a) Yes
(b) No
b) At what dollar amount should the 5,000 units be carried in inventory for external reporting purposes? (Omit
the "$" sign in your response.)
Finished goods inventory
$ ____________
Morey Company has just completed its first year of operations. The company's absorption costing income
statement for the year appears below:
Morey Company
Income Statement
Sales (40,000 units at $33.75 per unit)
1,350,000
1,050,000
1,050,000
210,000
840,000
Gross margin
510,000
420,000
90,000
The company's selling and administrative expenses consist of $300,000 per year in fixed expenses and $3 per unit
sold in variable expenses. The company's $21 per unit product cost given above is computed as follows:
Direct materials
$ 10
Direct labor
$ 21
Requirement 1:
Redo the company's income statement in the contribution format using variable costing. (Omit the "$" sign in
your response.)
__________
$ ____________
Variable expenses:
__________
$ ____________
__________
____________
Contribution margin
____________
____________
Fixed expenses:
__________
____________
__________
____________
__________
____________
$ ____________
Requirement 2:
Reconcile any difference between the net operating income on your variable costing income statement and the
net operating income on the absorption costing income statement above. (Omit the "$" sign in your
response.)
$ ____________
____________
$ ____________