ariable and Absorption-Costing Income Spicer Company produces and sells wooden p

Question

ariable and Absorption-Costing Income Spicer Company produces and sells wooden pallets that are used for moving and stackino materials. The operating costs for the past year were as follows: Variable costs per unit: $ 2.45 2.10 0.25 0.30 Direct materials Direct labour Variable overhead Variable selling Fixed costs per year: Fixed overhead 180,000 6,000 Selling and administrative During the year, Spicer produced 200,000 wooden pallets and sold 208,000 at $9 eadh. Spicer had 11,300 pallets in beginning finished goods inventory; costs have not changed from last year to this year. An actual cost system is used for product costing. Required: 1. What is the per-unit inventory cost that will be reported on Spicer'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. Per-unit inventory cast Units in endng inventory units Total ending inventory 3. 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? Whya nerau,e thr halance ??he.ti for external u5r snd reflert, absorption costing. V 5 Suppoge that Spicer Company had sold 196,700 pallets during the year. What would absorption-costinig incame have been? Variable-costing income? Absorption costing income Variable costing income

Explanation / Answer

Note: As per rule I am answering first 4 parts of this question.

(1).

Per unit inventory cost

$5.70

Units in ending inventory (200000 + 11300 – 208000)

3300

Total ending inventory (3300 * $5.70)

$18810

Explanation;

Per unit inventory cost will be calculated as follow;

Direct materials

$2.45

Direct labor

$2.10

Variable overhead

$0.25

Fixed overhead ($180000 / 200000)

$0.90

Per unit inventory cost

$5.70

(2). Absorption-costing income = $568000

Explanation;

Sales (208000 * $9)

$1872000

Less: Cost of goods sold (208000 * $5.70)

($1185600)

Gross margin

$686400

Less: Selling and Administrative expenses;

Variable selling ($0.30 * 208000)

($62400)

Fixed selling & administrative expenses

($56000)

Operating income

$568000

(3). Per unit inventory cost under variable costing = $4.80

Yes, Per unit inventory cost under variable costing differs from per unit inventory cost calculated in part -1.

Per unit inventory cost under variable costing is low than per unit inventory cost under absorption costing because under variable costing fixed overheads are not considered for calculating per unit inventory cost.

Explanation;

Per unit inventory cost will be calculated as follow;

Direct materials

$2.45

Direct labor

$2.10

Variable overhead

$0.25

Per unit inventory cost

$4.80

(4). Variable-costing income = $575200

Explanation;

Sales (208000 * $9)

$1872000

Less: Variable cost of goods sold (208000 * $4.80)

($998400)

Less: Variable selling expense ($0.30 * 208000)

($62400)

Contribution margin

$811200

Less: Fixed costs;

Fixed overheads

($180000)

Fixed selling & administrative expenses

($56000)

Operating income

$575200

Per unit inventory cost

$5.70

Units in ending inventory (200000 + 11300 – 208000)

3300

Total ending inventory (3300 * $5.70)

$18810

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