Question

15 Question 3 Absorbo Company makes and sells computer stands for the home office market. The following information is available regarding the company's operations, sales, and costs. 2008 (Actual) 2009 (Expected) 54,000 units $ 13,500,000 54,000 units $13,500,000 60,000 units 50,000 units Sales Quantity Revenue Production Quantity Costs Cost of goods manufactured Fixed expenses Selling and administrative Net income (absorption costing) Fixed manufacturing costs deferred in inventory Fixed manufacturing costs released from inventory $ 11,800,000 $ 10,250,000 $ 300,000 ? ? 0 $ $ $ $ 300,000 560,000 100,000 250,000 $ Note: All unit variable costs were assumed in 2009 to remain at their 2008 levels. In addition, fixed manufacturing costs were also assumed to bo the same in 2009 as in 2008. Required Calculate the variable costing net income for 2009 by adjusting the absorption costing net income. 3 a. 6 b. Determine the following: i) Fixed manufacturing cost per unit in 2009 ii) Total fixed manufacturing costs for 2009 iii) Contribution margin for 2009 6 c. Prepare a variable costing income statement for 2009 showing the variable selling, variable manufacturing, and fixed selling costs.

Answer 1

a Variable costing net income for 2009 Net income (absorption costing) Add: Fixed manufacturing overhead released from inventory Sub-total Less: Fixed manufacturing overhead deferred in inventory Net income (Variable costing) $560,000 $250,000 $810,000 -$100,000 $710,000 6b i) Fixed manufacturing cost per unit ii) Total fixed manufacturing cost iii) Contribution margin for 2009 $50 $2,500,000 $3,510,000 Closing stock for 2009 Opening stock Production Sub-total Sales Closing stock Units 6,000 50,000 56,000 54,000 2,000 Fixed manufacturing overhead deferred in closing inventory Fixed manufacturing cost per unit $100,000 $50 $100,000/2,000 units Total fixed manufacturing cost $2,500,000 (50,000*$50) $13,500,000 Contribution margin for 2009 Sales Less: Variable cost Variable manufacturing cost Variable selling expenses Contribution margin $8,370,000 (54,000*155) $1,620,000 see working below $3,510,000 Cost of goods manufactured ( both variable and fixed) Total fixed manufacturing cost Variable cost of goods manufactured Production units for 2009 Variable manufacturing cost per unit $10,250,000 $2,500,000 $7,750,000 a 50,000 b $155 a/b $13,500,000 Calculation of Variable selling expenses Sales Cost of goods sold Opening stock ( 6,000 units * $155) + ($250,000) Cost of goods manufactured ($10,250,000/50,000*48,000) Gross margin Fixed selling expenses Net operating income Variable selling expenses $1,180,000 $9,840,000 $11,020,000 $2,480,000 $300,000 $560,000 $1,620,000 Balancing number 6 $13,500,000 $930,000 Absorbo Company Income Statement Variable Costing For the Year Ended 2009 Sales Less : Variable cost Beginning FG Inventory (6,000 units * $155) Variable Cost of Goods manufactured Variable Manufacturing cost Variable Cost of Goods available for sale Less: Closing Stock (Closing units 2,000 * $155) Variable Cost of Goods Sold Variable selling expenses Contribution Margin Fixed Cost Fixed manufacturing cost Fixed selling and administrative expenses Total fixed cost Net Operating Income $7,750,000 $8,680,000 $310,000 $8,370,000 $1,620,000 as calculated above $3,510,000 $2,500,000 $300,000 $2,800,000 $710,000