During the year, BrightLight Inc. Produced 60,000 units of their specialty light

Question

During the year, BrightLight Inc. Produced 60,000 units of their specialty light. The specialty lights sell for $99 each. Beginning inventor)/ of the specialty lights was 1,000. At the end of the year a physical inventory count revealed that only 7,400 remained. The cost accountant at BrightLight Inc. determined the following variable costs for the production of the specialty lights (costs as per unit) : The cost accountant also informed you that the company incurred total fixed overhead in the amount of $747,000 and total fixed selling and administrative costs of $219,000 during the year. Required: a) Prepare an Income Statement using absorption costing. b) Calculate the cost of ending inventory under absorption costing. c) Prepare an Income Statements using variable costing. d) Calculate the cost of ending inventory under variable costing. Exercise 4) At the beginning of the year, Honey Company had beginning operating assets of $66,000. During the year, Honey Co. had operating income of $18,000 and expenses of $132,000. At the end of the year, they had operating assets of $59,000. Required Compute profit margin, turnover, an ROI for Honey Company.

Explanation / Answer

Exercise 3 Calculation of Units Sold Opening Inventory in Units 1000 Add:Production during the year in Units 60000 Less: Closing inventory 7400 No Of Units Sold in the year 53600 Under Absorption Costing Income Statements Units Sold 53600 SP per Unit $99 Sales $5,306,400 Less : Cost of Goods Sold Op. Inventory (1000 Units @ $52.95) 52950 Cost of Goods Manufactured (60000 units@ $52.95) 3177000 Cost of goods available for sale 3229950 Less: Closing Inventory (7400 units @ $52.95) 391830 2838120 Gross Profit $2,468,280 Less: Selling & administrative Expenses Variable expenses (53600 units @ $9) 482400 Fixed Expenses 219000 701400 Net Operating Income $1,766,880 Calculation of Manufacturing Cost per Unit Direct Materials $22.50 Direct Labour $13.50 Variable Overhead $4.50 Fixed Overhead ($747000 / 60000 units) $12 Total Cost Per Unit $52.95 Answer B Total Cost Per Unit $52.95 Closing Stock Inventory in Units 7400 Total Closing Stock in $ 391830 Under Variable Costing Income Statements Units Sold 53600 SP per Unit $99 Sales $5,306,400 Less : Cost of Goods Sold Op. Inventory (1000 Units @ $40.5) 40500 Cost of Goods Manufactured (60000 units@ $40.5 2430000 Cost of goods available for sale 2470500 Less: Closing Inventory (7400 units @ $40.5 299700 2170800 Gross Profit $3,135,600 Less: Selling & administrative Expenses Variable expenses (53600 units @ $9) 482400 Fixed Expenses 219000 701400 Net Operating Income $2,434,200 Calculation of Manufacturing Cost per Unit Direct Materials $22.50 Direct Labour $13.50 Variable Overhead $4.50 Total Cost Per Unit $40.50 Answer D Total Cost Per Unit $40.50 Closing Stock Inventory in Units 7400 Total Closing Stock in $ 299700 Exercise 4 Operating Income $18,000 Expenses $132,000 Revenue $150,000 Profit Margin = Operating Income / Revenue                            = 18000/150000 = 12% Turnover = Revenue / Avg. Operating Assets                    = 150000 / 62500 = 2.4 Times Avg. Operating assets = $6600 (Op. Operating assets) + $59000 (Cls Operating Assets)/2                                             = $62500 ROI = $18000 (Operating Income) / $62500 (Avg Operating Assets)         = 28.80%

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