ACCT 212 Connect Homework 6 Variable Costing Assignment solutions complete answers

ACCT 212 Connect Homework 6 Variable Costing Assignment solutions complete answers 

 

Blazer Chemical produces and sells an ice-melting granular used on roadways and sidewalks in winter. It annually produces and sells 23,250 tons of its granular. Because of this year’s mild winter, projected demand for its product is only 18,600 tons. Based on projected production and sales of 18,600 tons, the company estimates the following income using absorption costing.

Selling and administrative expenses consist of variable selling and administrative expenses of $6 per ton and fixed selling and administrative expenses of $212,400 per year. The company’s president will not earn a bonus unless a positive income is reported. The controller mentions that because the company has large storage capacity, it can report a positive income by setting production at the usual 23,250 ton level even though it expects to sell only 18,600 tons. The president is surprised that the company can report income by producing more without increasing sales.
 
Required:
1. Prepare an income statement using absorption costing based on production of 23,250 tons and sales of 18,600 tons. Can the company report a positive income by increasing production to 23,250 tons and storing the 4,650 tons of excess production in inventory?
2. By how much does income increase by when producing 23,250 tons and storing 4,650 tons in inventory compared to only producing 18,600 tons?

 

Grand Garden is a hotel with 240 suites. Its regular suite price is $250 per night per suite. The hotel’s total cost per night is $180 per suite and consists of the following.

The hotel manager receives an offer to hold the local Bikers’ Club meeting at the hotel in March, which is the hotel’s slow season with a low occupancy rate per night. The Bikers’ Club would reserve 220 suites for one night if the hotel accepts a price of $148 per night.

 

1. Compute gross profit assuming (a) 79,000 units are produced and 79,000 units are sold and (b) 118,000 units are produced and 79,000 units are sold.
2. By how much would the company’s gross profit increase or decrease from producing 39,000 more units than it sells?

 

Dion Company reports the absorption costing income statement below for May. The company began the month with no finished goods inventory. Dion produced 21,200 units, and 2,600 units remain in ending finished goods inventory for May. Fixed overhead was $63,600. Variable selling and administration expenses were $36,000 and fixed selling and administrative expenses were $17,400.

 

Rey Company’s only product sells for $232 per unit. Data for its first year of operations follow.

 

Kenzi, a manufacturer of kayaks, began operations this year. During this year, the company produced 1,050 kayaks and sold 800 at a price of $1,050 each. At year-end, the company reported the following income statement information using absorption costing.

a. Product cost per kayak under absorption costing totals $500, which consists of $400 in direct materials, direct labor, and variable overhead costs and $100 in fixed overhead cost. Fixed overhead of $100 per unit is based on $105,000 of fixed overhead per year divided by 1,050 kayaks produced.
b. The $220,000 in selling and administrative expenses consists of $85,000 that is variable and $135,000 that is fixed.

 

Compute total product cost per unit using absorption costing for the following production levels: (a) 3,000 units, (b) 3,900 units, and (c) 6,000 units.

The company sells its product for $130 per unit. Compute gross profit using absorption costing assuming the company (a) produces and sells 3,000 units and (b) produces 3,900 units and sells 3,000 units.

The company sells its product for $130 per unit. Compute contribution margin using variable costing assuming the company (a) produces and sells 3,000 units and (b) produces 3,900 units and sells 3,000 units.

 

Trio Company reports the following information for its first year of operations.
 

Direct materials
$ 15
per unit
Direct labor
$ 19
per unit
Variable overhead
$ 9
per unit
Fixed overhead
$ 281,050
per year
Units produced
25,550
units
Units sold
15,000
units
Ending finished goods inventory
10,550
units
1. Compute the product cost per unit using absorption costing.
2. Determine the cost of ending finished goods inventory using absorption costing.
3. Determine the cost of goods sold using absorption costing.

 

Assume instead that Trio Company uses variable costing.

1. Compute the product cost per unit using variable costing.
2. Determine the cost of ending finished goods inventory using variable costing.
3. Determine the cost of goods sold using variable costing.

 

Barnes Company reports the following for its product for its first year of operations.
 

Direct materials
$ 30
per unit
Direct labor
$ 20
per unit
Variable overhead
$ 11
per unit
Fixed overhead
$ 60,000
per year
Variable selling and administrative expenses
$ 3
per unit
Fixed selling and administrative expenses
$ 22,000
per year
Compute total product cost per unit using absorption costing for the following production levels: (a) 2,400 units, (b) 3,000 units, and (c) 5,000 units.

 

The company sells its product for $150 per unit. Compute gross profit using absorption costing assuming the company (a) produces and sells 2,400 units and (b) produces 3,000 units and sells 2,400 units.

 

The company sells its product for $150 per unit. Compute contribution margin using variable costing assuming the company (a) produces and sells 2,400 units and (b) produces 3,000 units and sells 2,400 units.

 

Sims Company began operations on January 1. Its cost and sales information for this year follow.

 

Direct materials
$ 35
per unit
Direct labor
$ 55
per unit
Variable overhead
$ 30
per unit
Fixed overhead
$ 7,000,000
per year
Variable selling and administrative expenses
$ 11
per unit
Fixed selling and administrative expenses
$ 4,250,000
per year
Units produced
100,000
units
Units sold
70,000
units
Sales price
$ 350
per unit
 
1. Prepare an income statement for the year using variable costing.
2. Prepare an income statement for the year using absorption costing.

 

Kenzi, a manufacturer of kayaks, began operations this year. During this year, the company produced 1,100 kayaks and sold 850 at a price of $1,100 each. At year-end, the company reported the following income statement information using absorption costing.
  

Sales (850 × $1,100)
$ 935,000
Cost of goods sold (850 × $475)
403,750
Gross profit
531,250
Selling and administrative expenses
220,000
Income
$ 311,250
 
Additional Information

a. Product cost per kayak under absorption costing totals $475, which consists of $375 in direct materials, direct labor, and variable overhead costs and $100 in fixed overhead cost. Fixed overhead of $100 per unit is based on $110,000 of fixed overhead per year divided by 1,100 kayaks produced.
b. The $220,000 in selling and administrative expenses consists of $75,000 that is variable and $145,000 that is fixed.

Prepare an income statement for the current year under variable costing.

 

Rey Company’s only product sells for $235 per unit. Data for its first year of operations follow.
 

Direct materials
$ 39
per unit
Direct labor
$ 47
per unit
Variable overhead
$ 5
per unit
Fixed overhead
$ 168,000
per year
Variable selling and administrative expenses
$ 37
per unit
Fixed selling and administrative expenses
$ 238,000
per year
Units produced and sold
24,000
units
 
1. Prepare an income statement for the year using absorption costing
2. Prepare an income statement for the year using variable costing.

 

Dion Company reports the absorption costing income statement below for May. The company began the month with no finished goods inventory. Dion produced 22,800 units, and 3,400 units remain in ending finished goods inventory for May. Fixed overhead was $68,400. Variable selling and administration expenses were $44,000 and fixed selling and administrative expenses were $24,600.
 

Sales (19,400 units)
$ 485,000
Cost of goods sold
380,000
Gross profit
105,000
Selling and administrative expenses
68,600
Income
$ 36,400

Prepare an income statement using variable costing.

 

Jax Incorporated reports the following data for its only product. The company had no beginning finished goods inventory and it uses absorption costing.
 

Sales price
$ 56.40
per unit
Direct materials
$ 9.40
per unit
Direct labor
$ 6.90
per unit
Variable overhead
$ 11.40
per unit
Fixed overhead
$ 844,800
per year
 
1. Compute gross profit assuming (a) 64,000 units are produced and 64,000 units are sold and (b) 88,000 units are produced and 64,000 units are sold.
2. By how much would the company’s gross profit increase or decrease from producing 24,000 more units than it sells?

 

Huds Incorporated reports the information below on its product. The company uses absorption costing and has a target markup of 40% of absorption cost per unit.
      

Direct materials
$ 102
per unit
Direct labor
$ 32
per unit
Variable overhead
$ 10
per unit
Fixed overhead
$ 192,000
per year
Variable selling and administrative expenses
$ 4
per unit
Fixed selling and administrative expenses
$ 125,000
per year
Units produced
48,000
units per year
Units sold
48,000
units per year
 
Compute the target selling price per unit under absorption costing. (Do not round intermediate calculations. Round your final answers to 2 decimal places.)

 

Grand Garden is a hotel with 100 suites. Its regular suite price is $240 per night per suite. The hotel’s total cost per night is $170 per suite and consists of the following.
   

Variable cost
$ 130
Fixed cost
40
Total cost per night per suite
$ 170

The hotel manager receives an offer to hold the local Bikers’ Club meeting at the hotel in March, which is the hotel’s slow season with a low occupancy rate per night. The Bikers’ Club would reserve 70 suites for one night if the hotel accepts a price of $138 per night.

(a) What is the contribution margin from this special offer?
(b) Should the Bikers’ Club offer be accepted or rejected?

 

Dowell Company produces a single product. Its income statements under absorption costing for its first two years of operation follow.
 

Income Statements (Absorption Costing)
Year 1
Year 2
Sales ($54 per unit)
$ 1,512,000
$ 3,132,000
Cost of goods sold ($40 per unit)
1,120,000
2,320,000
Gross profit
392,000
812,000
Selling and administrative expenses
293,000
323,000
Income
$ 99,000
$ 489,000

Additional Information

a.   Sales and production data for these first two years follow.

 

Units
Year 1
Year 2
Units produced
43,000
43,000
Units sold
28,000
58,000
 

b.   Variable costs per unit and fixed costs per year are unchanged during these years. The company's $40 per unit product cost using absorption costing consists of the following.

 

Direct materials
$ 13
Direct labor
13
Variable overhead
5
Fixed overhead ($387,000/43,000 units)
9
Total product cost per unit
$ 40
 

c.   Selling and administrative expenses consist of the following.

 

Selling and Administrative Expenses
Year 1
Year 2
Variable selling and administrative ($1 per unit sold)
$ 28,000
$ 58,000
Fixed selling and administrative
265,000
265,000
Total
$ 293,000
$ 323,000

Required:
Prepare income statements for each of these two years under variable costing. (Loss amounts should be entered with a minus sign.)

 

Trez Company began operations this year. During this year, the company produced 100,000 units and sold 80,000 units. The absorption costing income statement for this year follows.
 

Income Statement (Absorption Costing)
 
Sales (80,000 units × $50 per unit)
$ 4,000,000
Cost of goods sold
2,400,000
Gross profit
1,600,000
Selling and administrative expenses
560,000
Income
$ 1,040,000
  
Additional Information

a.   Selling and administrative expenses consist of $400,000 in annual fixed expenses and $2 per unit in variable selling and administrative expenses.

b.   The company's product cost of $30 per unit consists of the following.
 

Direct materials
$ 4
per unit
Direct labor
$ 15
per unit
Variable overhead
$ 4
per unit
Fixed overhead ($700,000 / 100,000 units)
$ 7
per unit

Required:
Prepare an income statement for the company under variable costing.

 

Blazer Chemical produces and sells an ice-melting granular used on roadways and sidewalks in winter. It annually produces and sells 21,750 tons of its granular. Because of this year’s mild winter, projected demand for its product is only 17,400 tons. Based on projected production and sales of 17,400 tons, the company estimates the following income using absorption costing.
 

Sales (17,400 tons at $112 per ton)
$ 1,948,800
Cost of goods sold (17,400 tons at $60 per ton)
1,044,000
Gross profit
904,800
Selling and administrative expenses
211,600
Income
$ 693,200
  
Its product cost per ton follows and consists mainly of fixed overhead because its automated production process uses expensive equipment.
 

Direct materials
$ 13
per ton
Direct labor
$ 4
per ton
Variable overhead
$ 3
per ton
Fixed overhead ($696,000/17,400 tons)
$ 40
per ton

Selling and administrative expenses consist of variable selling and administrative expenses of $6 per ton and fixed selling and administrative expenses of $211,600 per year. The company’s president will not earn a bonus unless a positive income is reported. The controller mentions that because the company has large storage capacity, it can report a positive income by setting production at the usual 21,750 ton level even though it expects to sell only 17,400 tons. The president is surprised that the company can report income by producing more without increasing sales.
 
Required:
1. Prepare an income statement using absorption costing based on production of 21,750 tons and sales of 17,400 tons. Can the company report a positive income by increasing production to 21,750 tons and storing the 4,350 tons of excess production in inventory?
2. By how much does income increase by when producing 21,750 tons and storing 4,350 tons in inventory compared to only producing 17,400 tons?

 

Dowell Company produces a single product. Its income under variable costing for its first two years of operation follow.

 

Variable Costing Income
Year 1
Year 2
Income
$ 34,000
$ 520,000

Additional Information

a.   Sales and production data for these first two years follow.

 

Units
Year 1
Year 2
Units produced
34,400
34,400
Units sold
24,000
44,800
 

b.   The company’s $40 per unit product cost (for both years) using absorption costing consists of the following.

 

Direct materials
$ 8
Direct labor
12
Variable overhead
10
Fixed overhead ($340,000/34,000 units)
10
Total product cost per unit
$ 40

Required:
Prepare a statement to convert variable costing income to absorption costing income for both years. (Leave no cells blank - be certain to enter "0" wherever required.)

 

A manufacturer reports direct materials of $5 per unit, direct labor of $2 per unit, and variable overhead of $3 per unit. Fixed overhead is $120,000 per year, and the company estimates sales of 12,000 units at a sales price of $25 per unit for the year. The company has no beginning finished goods inventory.

1. If the company uses absorption costing, compute gross profit assuming (a) 12,000 units are produced and 12,000 units are sold and (b) 15,000 units are produced and 12,000 units are sold.
2. If the company uses variable costing, how much would gross profit differ if the company produced 15,000 units instead of producing 12,000? Assume the company sells 12,000 units. Hint: Calculations are not required.