Question

12-17 JV Company began its operations...

unit sold were $11.75 each, and the fixed manuractu Midway incurred fixed selling costs, primarily for advertising and sales ma of $250,000. A commission of 10% on sales is paid to sales persons, and di costs averaging $2.00 per unit were incurred. 200,000, stribution Required: Prepare, in good form, a variable costing income statement for Midway for the 20x1 12-17 Absorption Costing, Variable Costing and Throughput Costing JV Company began its operations on January 1, 20X1, and produces a single product at sells for $7.00 per unit. Standard capacity is 100,000 units per year. 100,000 units were produced and 80,000 units were sold in 20xi Manufacturing costs and selling and administrative expenses were as follows th Fixed Costs Variable Costs Raw materials Direct labor Factory overhead Selling and administrative. 80,000 There were no v overhead is written off directly at year-en $1.50 per unit produced 1.00 per unit produced .50 per unit produced .50 per unit sold $150,000 ariances from the standard variable costs. Any under- or overapplied d as an adjustment to cost of goods sold. Required Compute net income under absorption costing Compute net income under variable costing Compute net income under throughput costing.

Answer 1

Absorption costing In the Absorption costing the product cost per unit will includes all manufacturing costs so it will considere the variable manufacturing cost as well as fixed manufacturing cost Calculate the product cost per unit as per absorption costing as under Unit product cost Raw materials Direct labor Variable Overhead per unit Fixed overhead per unit 100.000) Product Cost per unit Absorption Costing $1.50 $1.00 $0.50 ($150,000/ $1.50 $4.50 Working notes: Fixed overhead per unit = Total fixed overhead / Units produced = $150,000 / 100,000 =$1.5 per unit Now we will calculate the income as per absorption costing as under Fist we need to calculate the ending inventory units Ending inventory units = Units produced - Units sold =100,000 - 80,000 = 20,000 units

Amount $560.000 JV Company Absorption Costing Income Statement PARTICULARS Sales (80,000 * $7) Less: Cost of goods sold Opening inventory Add: Cost of goods manufactured (100,000*$4.50) Cost of goods available for sale Less: Ending inventory (20,000 * $4.50) Cost of goods sold (total) Gross margin Selling & Administrative expenses: Fixed Variable ($0.50 * 80,000) Total Selling and administrative expenses Net Income $0 $450,000 $450,000 -$90.000 $360.000 $200.000 $80.000 $40,000 $120,000 $80,000 Variable costing: In the variable costing the product cost per unit will only includes the variable manufacturing cost and not the fixed manufacturing cost Find the product cost per unit for variable costing as under Unit product cost Raw materials Direct labour Variable Overhead per unit Fixed overhead per unit ($150,000 / 100,000) Product Cost per unit Variable costing $1.50 $1.00 $0.50 $3.00

Calculate the income of the company under the variable costing as under JV Company Variable Costing Income Statement PARTICULARS Amount Sales (80.000 * $7) $560,000 Less: Variable cost of goods sold: Opening inventory $0 Add: Variable cost of goods manufactured (100,000 * $3) $300,000 Variable cost of goods available for sale $300,000 Less: Ending inventory (20,000 * $3) -$60,000 Variable cost of goods sold $240.000 Gross Contribution Margin $320,000 Less: Variable Selling and Administrative Expenses (80,000 * $0.50) $40,000 Contribution Margin $280,000 Less: Fixed expenses: Fixed manufacturing overhead $150,000 Fixed selling and adm. expenses $80,000 $230,000 Net operating income $50,000

3 Throughput costing In the throughput costing product cost per unit includes only raw materials cost per unit. The product cost under throughput costing as under Throughput costing $1.50 Unit product cost Raw materials Direct labour Variable Overhead per unit Fixed overhead per unit Product Cost per unit $1.50 Amount $560,000 $0 The incmoe under the throughput costing as under JV Company Throughput Costing Income Statement PARTICULARS Sales (80,000 * $7) Less: Cost of goods sold Opening inventory Add: Cost of goods manufactured (100,000*$1.50) Cost of goods available for sale Less: Ending inventory (20,000 * $1.50) Cost of goods sold (total) Throughput contribution Less: Other costs: Product conversion costs Selling and administrative expenses Net income $150.000 $150,000 -$30,000 $120,000 $440,000 $300,000 $120.000 $20,000