Variable-Costing and Absorption-Costing Income Borques Company produces and sell
ID: 2448406 • Letter: V
Question
Variable-Costing and Absorption-Costing Income
Borques Company produces and sells wooden pallets that are used for moving and stacking materials. The operating costs for the past year were as follows:
During the year, Borques produced 200,000 wooden pallets and sold 204,300 at $9 each. Borques had 8,200 pallets in beginning finished goods inventory; costs have not changed from last year to this year. An actual costing system is used for product costing.
Required:
1. What is the per-unit inventory cost that is acceptable for reporting on Borques's balance sheet at the end of the year? How many units are in ending inventory? What is the total cost of ending inventory? Round the per unit amount to the nearest cent.
2. Calculate absorption-costing operating income.
$
3. Conceptual Connection: What would the per-unit inventory cost be under variable costing? Round to the nearest cent.
$
Does this differ from the unit cost computed in Requirement 1?
Why?
4. Calculate variable-costing operating income.
$
5. Suppose that Borques Company had sold 196,700 pallets during the year. What would absorption-costing operating income have been? Variable-costing operating income?
Variable costs per unit: Direct materials $2.85 Direct labor $1.92 Variable overhead $1.60 Variable selling $0.90 Fixed costs per year: Fixed overhead $180,000 Selling and administrative $ 96,000Explanation / Answer
Per unit inventory cost
-------------------------------
Direct Material $2.85
Direct labor $1.92
Variable overhead $1.60
---------- $6.37
Fixed Manufacturing Overhead
Fixed cost $ 1,80,000
total units produced 2,00,000
Per unit fixed cost $0.90
------------
Total manufacturing cost per unit $7.27
-------------
2.Absorption costing operating income
Sales 204300 x $9.00 = $1838700
Cost goods sold = 204300 x $7.27 = $1485261
Gross profit =$ 353439
less :- variable selling overhead $0.9 x 204300 $ 183870
Fixed selling overhead $ 96,000
--------------- $279870
Net income = $ 73,569
3.Unit cost of inventory in variable costing
Direct Material $2.85
Direct labor $1.92
Variable overhead $1.60
---------- $6.37
This is different compared to calculating the unit cost calculated in terms of absorption costing, because fixed manufacturing overhead is not included in variable costing approach.
4.Variable costing operating income
Sales per unit $9.00
cost of goods sold $6.37
variable selling per unit $0.90
--------- $7.27
Contribution margin $1.73
No of units sold 204,000
------------- $352,920
less :-Fixed cost
Manufacturing overhead $180,000
selling ovehead $ 96,000
-------------- $276,000
operating income $ 76,920
5.
Income under absorption costing on selling 196700 units
Absorption costing
Sales $9 x 196700 units 17,70,300
less cost of goods sold $7.27 x 196700 14,30,009
Gross profit 3,40,291
less variable sellling overhead $0.9 x 196700 =$177030
Fixed selling overhead 96000
------------- 2,73,030
Operating income 67,261
Income under variable costing on selling 196,700 units
contribution $1.73 x 196700 units = $340291
Fixed cost
Manufacturing $180000
Selling $ 96000
------------ $276000
Opeating income $ 64,291
less :
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