The following information is available for Richardson Company for its first year
ID: 2422151 • Letter: T
Question
The following information is available for Richardson Company for its first year of operations: If Richardson Company had used variable costing, what amount of income before income taxes would it have reported? What was the total amount of Selling,General and Administrative expense incurred by Richardson Company?what would it show as the value of ending inventory?
Sales in units 5,000 Production in units 8,000 Manufacturing costs: Direct labor $3 per unit Direct material $5 per unit Variable overhead $1 per unit Fixed overhead $100,000 Net income (absorption method) $30,000 Sales price per unit $40Explanation / Answer
Caculation of Income Before Tax and Interest
Sales $200000
(-) Variable cost $5000
Contribution $ 195000
(-) Fixed cost $100000
Income Before Interest and Tax $95000
Total amount of selling general and adminstrative expenses is income before interest and tax less net income
= $95000-$30000
Total amount on selling general and adminstrative expenses = $65000
The value of ending inventory
Ending inventory in units = production units - sales units
Ending inventory in units = 8000 - 5000 = 3000 units
The value of ending inventory
Inventory in units 3000 units
Direct labor = 3 per unit
Direct material = 5 per unit
Direct labor $ 6000 (3000 units * $ 3 per unit)
Direct material $15000 (3000 units * $ 5 per unit)
Variable overhead $ 3000
value of closing inventory $ 24000 ( $ 6000 + $ 15000 + $ 3000)
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