MANAGERIAL ACCOUNTING HANDOUT PROBLEM 7 Score Name Section Problem (10 points) P
ID: 2408582 • Letter: M
Question
MANAGERIAL ACCOUNTING HANDOUT PROBLEM 7 Score Name Section Problem (10 points) Pitt Company has the following data for 20X4 concerning its manufacturing operations PITT COMPANY DATA FOR 20X4 SALES AND MANUFACTURING OPERATIONS Selling price per unit Variable Variable operating cost per unit Total fixed manufacturing costs Total fixed 120 cost per t 95 500,000 costs 100,000 The company produced 100,000 units during the year and sold 90,000 of those units. REQUIRED: Answer the following questions related to the above data, showing appropriate calculations to support your answers. (I) What is the company's total revenue for the year? (2) What is the company's full absorption cost per unit? (3) What is the company's contribution margin per unit? (4) What is the company's total gross profit for the year? (5) What is the company's net income for the year under variable costing? (6 What is the value of the company's ending inventory under variable costing? 7 What is the company's net income for the year under full absorption costing? (8) What is the value of the company's ending inventory under full absorption costing?Explanation / Answer
1) Computation of total Revenue of Pitt Company for 20X4 Relevent Informations: Variable Operating Cost = $15 per unit Production = 100000 units Variable Manufacturing cost = $95 per unit Sale = 90000 units Fixed Manufacturing Cost = $500000 Selling Price = $120 per unit Fixed Operating Cost = $100000 Amount ( $ ) Variable Manufacturing Cost (95 X 90,000) 85,50,000 Variable Operating Cost (15 X 90,000) 13,50,000 PRIME COST 99,00,000 Add: Fixed Manufacturing Cost (5,00,000/1,00,000 X 90,000) 4,50,000 Cost of Production/Cost of Goods Sold of 90,000 units 1,03,50,000 Sales (90,000 X 120) 1,08,00,000 Less: Cost of Goods Sold 1,03,50,000 Contribution 4,50,000 Less: Fixed Operating Cost 1,00,000 Total Revenue of the company 3,50,000 2) Computation of Full Absotption Cost per unit Amount ( $ ) Variable Manufacturing cost per unit 95 Variable Operating cost per unit 15 TOTAL VARIABLE COST (Per unit) 110 Fixed Manufacturing cost per unit (5,00,000 / 1,00,000) 5 Full Absorption cost per unit 115 3) Computaion of Contribution margin per unit Amount ( $ ) Sales price per unit 120 Less Total Variable cost per unit Variable Manufacturing cost 95 Variable Operating cost 15 110 Contribution margin per unit 10 4) Computaion of Gross Profit for the year. Amount ( $ ) Variable Manufacturing Cost (95 X 90,000) 85,50,000 Variable Operating Cost (15 X 90,000) 13,50,000 PRIME COST 99,00,000 Add: Fixed Manufacturing Cost (5,00,000/1,00,000 X 90,000) 4,50,000 Cost of Production/Cost of Goods Sold of 90,000 units 1,03,50,000 Amount ( $ ) Sales (90,000 X 120) 1,08,00,000 Less: Cost of Goods Sold 1,03,50,000 Gross Profit for the year 4,50,000 5) Computaion of Net Income under Variable Costing Amount ( $ ) Variable Manufacturing cost per unit 95 Variable Operating cost per unit 15 TOTAL VARIABLE COST (Per unit) 110 Sales 1,08,00,000 Less: Variable cost (110 X 90000) 99,00,000 Contribution 9,00,000 Less: Total Fixed Cost (5,00,000+1,00,000) 6,00,000 Net Income 3,00,000 6) Computaion of Value of Ending Inventory Amount ( $ ) Variable cost per unit under variable costing 110 Quantity of end Inventory (1,00,000 - 90,000) units 10,000 units Therefore Value of End Inventory under variable costing = 110 X 10,000 11,00,000 7) Net Income under absorption costing Amount ( $ ) Sales (90,000 X 120) 1,08,00,000 Less: Total Absorption cost (115 X 90000) 1,03,50,000 Contribution Margin 4,50,000 Less: Fixed Operating Cost 1,00,000 Total profit under absorption costing 3,50,000 8) Value of End Inventory under absorption costing: = Absorption cost per unit X Units of end inventory = 115 X 10,000 11,50,000
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