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$400,000
+ $16
80,000
$5 + $16 = $21
Problem 8-21 (Continued)
b. Variable-costing income statements:
2. Reconciliation:
Difference In
Difference Predetermined Fixed Overhead
Reported Income
in Change in Fixed Expensed Under
Absorption Variable Reported Inventory Overhead Absorption and
Year Costing Costing Income (in units) Rate* Variable Costing
1 $242,500 $242,500 -0- -0- $5 0
2 172,500 72,500 $100,000 20,000 5 $100,000
3 277,500 327,500 (50,000) (10,000) 5 (50,000)
$400,000
*Predetermined fixed manufacturing overhead rate = 80,000
Problem 8-21 (Continued)
3. a. In year 4, the difference in reported operating income will be $50,000,
calculated as follows:
Change in Predetermined
inventory fixed overhead
(in units) rate
(10,000) $5 = $(50,000)
a
Assumes that management has committed to direct labor sufficient
to produce the planned production volume of 80,000 units; direct
labor is used at the rate of $2.50 per unit produced.
b
Assumes that management has committed to support resources
sufficient to produce the planned production volume of 80,000 units;
variable-overhead cost is used at the rate of $6 per unit produced.
c
Variable selling and administrative costs amount to $ .50 per unit
sold.
PROBLEM 8-27 (35 MINUTES)
1. Total cost:
2. The cost of the year-end inventory of 400 units (10,000 units produced 9,600 units sold) is
computed as follows:
3. The total costs would be allocated between the current periods income statement and the
year-end inventory on the balance sheet. Thus:
Absorption costing: $1,934,400 - $54,000 = $1,880,400
Variable costing: $1,934,400 - $27,600 = $1,906,800
Throughput costing: $1,934,400 - $14,400 = $1,920,000
PROBLEM 8-27 (CONTINUED
$3,300,000
Contribution margin per unit= 100,000 =$33 per unit
Projected total sales for the year are 119,000 units (100,000 in first 10 months
plus 19,000 units in last 2 months). We can compute projected income for the
year as follows. (There are no variances or selling and administrative costs.)
The net income projected for the year under variable costing is $327,000.
Note: The problem states that the prior periods cost rates are the same as
those of the current period. There are 10,000 units on hand at October 31, and
production equals sales in the first 10 months. Thus, 10,000 units were on
hand at January 1.
b. Absorption costing: The gross margin for the first 10 months is $300,000. Notice
that income and gross margin are the same, since there are no selling or
administrative expenses. Therefore, during the first 10 months:
$300,000
Gross margin per unit= 100,000 units =$3 per unit
pROBLEM 8-28 (CONTINUED)
Projected sales for the year are 119,000 units, so we can compute the projected
gross margin for the year as follows: