4. On January l of the current year, Anderson Corporation commenced operations a

Question

4. On January l of the current year, Anderson Corporation commenced operations and operated its plant at100% of capacity during the month of January. The following data summarized the results for January: Units produced Units sold ($80 per unit) 25,000 units 21,000 units Manufacturing costs: Variable manufacturing costs Fixed manufacturing costs $575,000 200,000 Selling and administrative expenses Variable selling and administrative expenses Fixed selling and administrative expenses $210,000 252,000 Required: a. b. c. Calculate the value of ending inventory using absorption costing. Calculate the value of ending inventory using variable costing. Prepare an income statement using variable costing.

Explanation / Answer

a) Variable manufacturing cost per unit = 575000/25000 = 23 per unit

Ending inventory under variable costing = (25000-21000)*23 = 92000

b) Total manufacturing cost per unit = 775000/25000 = 31 per unit

Ending inventory under absorption costing = (25000-21000)*31= 124000

c) Income statement under variable costing :

Sales (21000*80) 1680000 Variable cost Variable manufacturing cost (21000*23) 483000 Variable selling and administrative expense 210000 TOtal variable cost 693000 Contribution margin 987000 Fixed cost Fixed manufacturing cost 200000 Fixed selling and administrative expense 252000 Total fixed cost 452000 Net operating income 535000

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