Question

Crystal Clear Corporation manufactures and sells 50-inch television sets and uses standard costing. Actual data relating to January, February, and March 2017 are as follows: The selling price per unit is $3,600. The budgeted level of production used to calculate the budgeted fixed manufacturing cost per unit is 1,100 units. There are no price, efficiency, or spending variances. Any production-volume variance is written off to cost of goods sold in the month in which it occurs.

Answer 1

1.a.

Variable Costing Income Statement
	January	February	March
Sales	$ 3,420,000	$ 3,870,000	$ 4,338,000
Variable Costs
Variable Cost of Goods Sold	712,500	806,250	903,750
Variable Marketing Cost	475,000	537,500	602,500
Total Variable Costs	1,187,500	1,343,750	1,506,250
Contribution Margin	2,232,500	2,526,250	2,831,750
Fixed Costs
Manufacturing	440,000	440,000	440,000
Operating ( Marketing)	180,000	180,000	180,000
Total Fixed Costs	620,000	620,000	620,000
Net Operating Income	$ 1,612,500	$ 1,906,250	$ 2,211,750

b.

Absorption Costing Income Statement
	January	February	March
Sales	$ 3,420,000	$ 3,870,000	$ 4,338,000
Cost of Good Sold
Variable Cost of Goods Sold	712,500	806,250	903,750
Fixed Cost of Goods Sold	380,000	430,000	482,000
Cost of Goods Sold	1,092,500	1,236,250	1,385,750
Adjustment for production volume variance	0	(10,000)	16,000
Gross Profit	2,327,500	2,623,750	2,968,250
Operating ( marketing) costs
Variable	475,000	537,500	602,500
Fixed	180,000	180,000	180,000
Total Operating ( Marketing ) Costs	655,000	717,500	782,500
Net Operating Income	$ 1,672,500	$ 1,906,250	$ 2,185,750

2. Reconciliation of Variable Costing and Absorption Costing Net Operating Income:

	January	February	March
Variable Costing Net Operating Income	$1,612,500	$1,906,250	$2,211,750
Add: Fixed manufacturing cost deferred in ending inventory ( $ 400 x units of ending inventory )	60,000	60,000	34,000
Less: Fixed manufacturing cost released from beginning inventory	0	60,000	60,000
Absorption Costing Net Operating Income	$1,672,500	$1,906,250	$2,185,750