Prior to the first month of operations ending July 31, 2016, Muzenski Industries
ID: 2567736 • Letter: P
Question
Prior to the first month of operations ending July 31, 2016, Muzenski Industries Inc. estimated the following operating results:
Question not attempted.
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Sales (28,800 × $80)
2,304,000.00
2
Manufacturing costs (28,800 units):
3
Direct materials
1,152,000.00
4
Direct labor
259,200.00
5
Variable factory overhead
172,800.00
6
Fixed factory overhead
244,800.00
7
Fixed selling and administrative expenses
29,400.00
8
Variable selling and administrative expenses
34,500.00
The company is evaluating a proposal to manufacture 36,000 units instead of 28,800 units, thus creating an ending inventory of 7,200 units. Manufacturing the additional units will not change sales, unit variable factory overhead costs, total fixed factory overhead cost, or total selling and administrative expenses.
Required:
none
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Labels and Amount Descriptions
In CengageNOW, a Label is a text entry that does not have an amount associated with it.
In CengageNOW, an Amount Description is a text entry other than an Account that has an amount associated with it.
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Absorption Costing Income Statement
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Prepare an estimated income statement, comparing operating results if 28,800 and 36,000 units are manufactured in the absorption costing format. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. Be sure to complete the statement heading. “Less”, “Plus” or colons (:) will automatically appear if required.
Question not attempted.
Score: 0/89
Muzenski Industries Inc.
Absorption Costing Estimated Income Statement
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28,800 Units Manufactured
36,000 Units Manufactured
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Cost of goods sold:
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Solution
Muzenski Industries Inc.
Absorption Costing Estimated Income Statement
1
28,800 Units Manufactured
36,000 Units Manufactured
2
3
Cost of goods sold:
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7
8
9
Points:
0 / 21
Feedback
Check My Work
Recall that under absorption costing, the cost of goods manufactured includes direct materials, direct labor, and factory overhead costs. Both fixed and variable factory costs are included as part of factory overhead. To obtain Cost of Goods manufactured, calculate unit cost for direct materials, direct labor, variable factory overhead and fixed factory overhead. Add together to get total unit cost for units manufactured. For 36,000 units, use the same unit costs for direct materials, direct labor, and variable overhead, but recalculate the fixed factory overhead and add this to obtain the unit cost at the 36,000 unit level. Sales - (Cost of Goods Manufactured - Ending Inventory) = Gross Profit; Gross Profit - Selling and Administrative Expenses = Income from Operations. Remember that the ending inventory adjustment will only be necessary at the 36,000 level.
Explanation
none
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Variable Costing Income Statement
Shaded cells have feedback.
Prepare an estimated income statement, comparing operating results if 28,800 and 36,000 units are manufactured in the variable costing format. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. Be sure to complete the statement heading. “Less”, “Plus” or colons (:) will automatically appear if required.
Question not attempted.
Score: 0/143
Muzenski Industries Inc.
Variable Costing Estimated Income Statement
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28,800 Units Manufactured
36,000 Units Manufactured
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Variable cost of goods sold:
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Solution
Muzenski Industries Inc.
Variable Costing Estimated Income Statement
1
28,800 Units Manufactured
36,000 Units Manufactured
2
3
Variable cost of goods sold:
4
5
6
7
8
9
10
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Points:
0 / 34
Please show work, thank you!
1
Sales (28,800 × $80)
2,304,000.00
2
Manufacturing costs (28,800 units):
3
Direct materials
1,152,000.00
4
Direct labor
259,200.00
5
Variable factory overhead
172,800.00
6
Fixed factory overhead
244,800.00
7
Fixed selling and administrative expenses
29,400.00
8
Variable selling and administrative expenses
34,500.00
Explanation / Answer
Part A)
The absorption costing income statement is provided as below:
_____
The per unit cost of goods manufactured is calculated as follows:
28,800 Units:
Cost of Goods Manufactured Per Unit = 1,152,000/28,800 + 259,200/28,800 + 172,800/28,800 + 244,800/28,800 = $63.50
____
36,000 Units:
Cost of Goods Manufactured Per Unit = 1,152,000/28,800 + 259,200/28,800 + 172,800/28,800 + 244,800/36,000 = $61.80
_____
Part B)
The variable costing income statement is prepared as follows:
_____
The per unit cost of variable cost of goods manufactured is calculated as follows:
Variable Cost of Goods Manufactured Per Unit = 1,152,000/28,800 + 259,200/28,800 + 172,800/28,800 = $55
_____
Part C)
The reason for the difference in income from operations reported for the two levels of production by the absorption costing income statement is on account of lower cost of goods sold at a level of 36,000 units. While all the variable costs per unit remain at the same level, the per unit fixed factory overhead cost decreases from $8.50 (244,800/28,800) to $6.80 (244,800/36,000). As all the inventory is not sold at the end of the period, a part of cost of goods manufactured is transferred to closing stock. The value of cost of goods sold is reported a lower value because of lower cost of goods manufactured which consequently results in an increase in income from operations.
Muzenski Industries Inc. Absorption Costing Income Statement For the Month Ending July 31, 2016 28,800 Units Manufactured 36,000 Units Manufactured Sales 2,304,000 2,304,000 Cost of Goods Sold: Cost of Goods Manufactured: 28,800*63.50 1,828,800 36,000*61.80 2,224,800 Less Inventory, July 31 (7,200*61.80) 444,960 Cost of Goods Sold 1,828,800 1,779,840 Gross Profit 475,200 524,160 Selling and Administrative Expenses (29,400 + 34,500) 63,900 63,900 Income from Operations $411,300 $460,260Related Questions
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