Exercise 18.16 Variable Costing, Absorption Costing During its first year of ope
ID: 2462442 • Letter: E
Question
Exercise 18.16
Variable Costing, Absorption Costing
During its first year of operations, Snobegon, Inc. (located in Lake Snobegon, Minnesota), produced 40,000 plastic snow scoops. Snow scoops are oversized shovel-type scoops that are used to push snow away. Unit sales were 38,200 scoops. Fixed overhead was applied at $0.75 per unit produced. Fixed overhead was underapplied by $2,900. This fixed overhead variance was closed to Cost of Goods Sold. There was no variable overhead variance. The results of the year’s operations are as follows (on an absorption-costing basis):
Required:
1. Calculate the cost of the firm’s ending inventory under absorption costing. Round unit cost to the five decimal places. Round your final answer to the nearest dollar.
$
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What is the cost of the ending inventory under variable costing? Round unit cost to five decimal places. Round your final answer to the nearest dollar.
$
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2. Prepare a variable-costing income statement. Round the unit cost to five decimal places, when required. Round your final answers to the nearest dollar. Use the rounded values in subsequent computations.
Snobegon, Inc.
Variable-Costing Income Statement
For the First Year of Operations
$
Contribution margin
$
Less:
Operating income
$
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What is the difference between the two income figures?
$
2. Prepare a variable-costing income statement. Round the unit cost to five decimal places, when required. Round your final answers to the nearest dollar. Use the rounded values in subsequent computations.
Snobegon, Inc.
Variable-Costing Income Statement
For the First Year of Operations
$
Contribution margin
$
Less:
Operating income
$
Explanation / Answer
Answer:1
Unadjusted cost of goods sold = $546260 - $2900 = $543360
Unit cost = 543360/38200 = $14.22408
Absorption costing ending inventory = (40000 -38200) *$14.22408 = $25603
Variable costing unit cost = $14.22408-$0.75 = $13.47408
Variable costing ending inventory = (40000 -38200)* $13.47408= $24253
Answer:2
Fixed overhead = 40000*0.75 + 2900 = $32900
Difference between two income figures ( IA - IV) = overhead rate* (production units - sales units)
33240 -31890 = 0.75*(40000 - 38200)
1350 = 1350
Snobegon Inc. Variable costing income statement for the first year of operation Sales $ 7,64,000.00 variable cost of goods sold (38200*13.47408) $ 5,14,709.86 Contribution margin $ 2,49,290.14 Fixed overhead $ 32,900.00 Fixed selling and administrative expenses $ 1,84,500.00 Net income $ 31,890.14Difference between two income figures ( IA - IV) = overhead rate* (production units - sales units)
33240 -31890 = 0.75*(40000 - 38200)
1350 = 1350
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