Variable and Full Costing: Spencer Electronics produces a wireless home lighting
ID: 2490652 • Letter: V
Question
Variable and Full Costing: Spencer Electronics produces a wireless home lighting device that allows consumers to turn on home lights from their cars and light a safe path into and through their homes. Information on the first three years of business is as follows:
Required
1. Calculate profit and the value of ending inventory for each year using full costing.
2. Explain why profit fluctuates from year to year even though the number of units sold, the selling price, and the cost structure remain constant.
3. Calculate profit and the value of ending inventory for each year using variable costing.
4. Explain why, using variable costing, profit does not fluctuate from year to year.
2014 2015 2016 Total Units sold 20,000 20,000 20,000 60,000 units produced 25,000 25,000 15,000 60,000 fixed production cost $750,000 $750,000 $750,000 variable production costs per unit $150 $150 $150 Selling price per unit $250 $250 $250 Fixed selling and admin expense $220,000 $220,000 $220,000Explanation / Answer
a. Calculate profit and the value of ending inventory for each year using full costing. Round costpercent to two decimal places.
2. Explain why profit fluctuates from year to year even though the number of units sold, the selling price, and the cost structure remain constant.
Answer :
Due to the varying quantities of products manufactured, it affects the fixed manufacturing costs
3
Calculate profit and the value of ending inventory for each year using variable costing.
Answer :
4
Explain why, using variable costing, profit does not fluctuate from year to year.
Answer :Because in the variable costing we consider the cost of goods for only that product we sold so profit level remain same and it does not fluctuate from year to year
2014 2015 2016 Units sold 20,000 20,000 20,000 Selling price per unit 250 250 250 Sales revenue=Unit Price * Unit Sold 5000000 5000000 5000000 Less: Cost of goods sold
=VC* Units Produce 3750000 3750000 2250000 Margin 1250000 1250000 2750000 Less: Fixed Production Cost 750,000 750,000 750,000 Admin costs (minus) 220000 220000 220000 Net Income 280,000 280,000 1,780,000 Inventory 5000 5000 0 Value 944000 944000
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