1-8 please all Verizon 9:05 AM instructure-uploads.s3.amazonaws.com S4 per unit
ID: 2567144 • Letter: 1
Question
1-8 please all Verizon 9:05 AM instructure-uploads.s3.amazonaws.com S4 per unit Direct materials cost expenses S2 per unit Direct labor cost Variable S&A; $8 per unit Fixed S&A; expenses 200,000 per year Variable overhead cost S3 per unit Fixed overhead cost $600,000 per year Sales price/unit $40 Units Produced Units Sold Units in 60,000 60,000 60,000 45,000 2009 2010 15,000 2011 60,000 75,000 UNITS PRODUCED EXCEED UNITS SOLD ICEAGE COMPANY Income Statement (Absorption Costing) For Year Ended December 31, 2010 Sales Cost of goods sold Gross margin S&A; expenses Net income ICEAGE COMPANY Income Statement (Variable Costing) For Year Ended December 31, 2010 Sales Variable production costs Variable S&A; expenses Contribution margin Fixed expenses Fixed overhead Fixed S&A; expenses Net income Variable Costing and Absorption Costing UNITS PRODUCED ARE LESS THAN UNITS SOLD ICEAGE COMPANY Income Statement (Absorption Costing) For Year Ended December 31, 2011 Sales Cost of goods sold Gross margin S&A; expenses Net income
Explanation / Answer
For the year ended 31 December, 2010
Under Absorption Costing
No. of Units Sold = 45,000 units
Sales Revenue = 45,000 x $40
.........................= $1,800,000
Total Manufacturing Cost = [($4 + $8 + $3) x 60,000 units] + $600,000
.........................................= $1,500,000
Cost of Closing Inventories = ($1,500,000 / 60,000 units) x 15,000 units
............................................= $375,000
Cost of Goods Sold = $1,500,000 - $375,000
................................= $1,125,000
Gross Profit = $1,800,000 - $1,125,000
....................= $675,000
Net Income = $675,000 - ($2 x 45,000) - $200,000
...................= $385,000
Question 1 : What is gross margin if 45,000 units are sold?
Answer 1 : Option B i.e. $675,000
Question 2 :What is net income under absorption costing if 45,000 units are sold?
Answer 2 : Option C i.e. $385,000
Under Variable Costing
Sales Revenue = 45,000 x $40
.........................= $1,800,000
Variable Production Cost = ($4 + $8 + $2 + $3) x 45,000 units
.........................................= $765,000
Contribution Margin = $1,800,000 - $765,000
................................= $1,035,000
Net Income = $1,035,000 - $200,000 - $600,000
...................= $235,000
Question 3: What is contribution margin if 45,000 units are sold?
Answer 3: Option A i.e. $1,035,000
Question 4: What is net income under variable costing if 45,000 units are sold?
Answer 4: Option D i.e. $235,000
For the year ended 31 December, 2011
Under Absorption Costing
No. of Units Sold = 75,000 units
Sales Revenue = 75,000 x $40
.........................= $3,000,000
Total Manufacturing Cost = [($4 + $8 + $3) x 60,000 units] + $600,000
.........................................= $1,500,000
Cost of Opening Inventories = $375,000
Cost of Goods Sold = $375,000 + $1,500,000
................................= $1,875,000
Gross Profit = $3,000,000 - $1,875,000
....................= $1,125,000
Net Income = $1,125,000 - ($2 x 75,000) - $200,000
...................= $775,000
Question 5 : What is gross margin if 75,000 units are sold?
Answer 5 : Option B i.e. $1,125,000
Question 6 :What is net income under absorption costing if 75,000 units are sold?
Answer 6 : Option A i.e. $775,000
Under Variable Costing
Sales Revenue = 75,000 x $40
.........................= $3,000,000
Variable Production Cost = ($4 + $8 + $2 + $3) x 75,000 units
.........................................= $1,275,000
Contribution Margin = $3,000,000 - $1,275,000
................................= $1,725,000
Net Income = $1,725,000 - $200,000 - $600,000
...................= $925,000
Question 7: What is contribution margin if 75,000 units are sold?
Answer 7: Option A i.e. $1,725,000
Question 8: What is net income under variable costing if 75,000 units are sold?
Answer 8: Option C i.e. $925,000
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