Question

Bramble Industries makes artificial Christmas trees. The unit costs for producing a tree are: Direct materials $25 Direct labor $13 Variable overhead $13 Fixed overhead $5 The company also incurs $1 per tree in variable selling and administrative costs and $3,600 in fixed marketing costs. At the beginning of the year the company had 850 trees in the beginning Finished Goods Inventory.

The company produced 2,100 trees during the year. Sales totaled 1,900 trees at a price of $102 per tree.

(a) Based on absorption costing, what was the company’s operating income for the year?

Company’s operating income $

(b) Based on variable costing, what was the company’s operating income for the year?

Company’s operating income $

(c) Assume that in the following year the company produced 2,100 trees and sold 2,700. Based on absorption costing, what was the operating income for that year? Based on variable costing, what was the operating income for that year?

Absorption Costing

Variable Costing Operating income $ $

Answer 1

answers a) absorption costing operating income b) variable costing operating income c) absorption costing operating income variable costing operating income 34,300 33,300 53500 56500

explanation

direct matrial direct labor variable OH fixed OH uni product cost variable absorption costing costing 25.00 25.00 13.00 13.00 13.00 13.00 5.00 56.00 51.00 193800 Bramble industries income statement - variable costing for the year end sales less variable cost beginning inventory 47600 direct matrial 47500 direct labor 24700 variable OH 24700 variable selling costs 1900 total variable costs contribution margin less fixed costs fixed manufacturing costs 10,500 fixed selling 3,600 total fixed cost net operating income (loss) 146400 47400 14.100 33300

Bramble industries Absorption costing income statement for the year ended sales 193800 less cost of goods sold beginning inventory direct matrial direct labor variable OH fixed OH 47600 47500 24700 24700 9500 154000 39800 total cost of goods sold gross margin selling and administration expenses variable selling and adm expenses fixed selling and adm expenses total selling and adm expenses net operating income (loss) 1900 3,600 5500 34300

answer c)

25.00 direct matrial direct labor variable OH fixed OH uni product cost variable absorption costing costing 25.00 13.00 13.00 13.00 13.00 5.00 56.00 51.00 275400 Bramble industries income statement - variable costing for the year end sales less variable cost beginning inventory 64400 direct matrial 67500 direct labor 35100 variable OH 35100 variable selling costs 2700 total variable costs contribution margin less fixed costs fixed manufacturing costs 10,500 fixed selling 13,600 total fixed cost net operating income (loss) 204800 70600 14,100 56500

Bramble industries Absorption costing income statement for the year ended sales 275400 64400 67500 35100 35100 13500 less cost of goods sold beginning inventory direct matrial direct labor variable OH fixed OH total cost of goods sold gross margin selling and administration expenses variable selling and adm expenses fixed selling and adm expenses total selling and adm expenses net operating income (loss) 215600 59800 2700 3,600 6300 53500