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Chapter 21: Q16E (page 1171)

Question: Preparing variable costing income statements, production exceeds sales

ReVitalAde produced 13,000 cases of powdered drink mix and sold 12,000 cases in April 2018. The sales price was \(29, variable costs were \)12 per case (\(9 manufacturing and \)3 selling and administrative), and total fixed costs were \(100,000 (\)91,000 manufacturing overhead and $9,000 selling and administrative). The company had no beginning Finished Goods Inventory.

Requirements:

  1. Prepare the April income statement using variable costing.
  2. Determine the product cost per unit and the total cost of the 1,000 cases in Finished Goods Inventory as of April 30.

Short Answer

Expert verified

Answer

  1. Operating income is $104,000
  2. Total unit product cost is $9 and finished goods inventory is $9,000.

Step by step solution

01

Income statement using variable costing

Particulars

Amount

Net sales revenue ($29x12,000)

$348,000

Less: Variable costs ($12x12,000)

$144,000

Contribution margin

$204,000

Less: Fixed costs

Fixed costs of goods sold

$91,000

Fixed selling and administrative cost

$9,000

Operating Income

$104,000

02

Calculation of product cost per unit and total cost of 1,000 cases in finished goods inventory as of April 30.

Particulars

Amount

Variable manufacturing cost

$9

Total unit product cost

$9

Finished goods inventory, ending balance ($9x1,000)

$9,000

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Most popular questions from this chapter

Computing unit product cost, variable costing Calculate the unit product cost using variable costing. Round your answer to the nearest cent.

Use the following information for Short Exercises S21-2 and S21-3.

Martin Company had the following costs:

Units produced 320 units Direct materials $ 71 per unit Direct labor 40 per unit Variable manufacturing overhead 13 per unit Fixed manufacturing overhead 7,360 per year Variable selling and administrative costs 22 per unit Fixed selling and administrative costs 1,920 per year

Using variable costing, service company Sherman Company provides carpet cleaning services to commercial and residential customers. Using the data below, determine the contribution margin ratio for each business segment, rounded to two decimal places:

Question: Chaney Company provides lawn care services. Following are data for a recent week:

Service Revenue \(1,300

Variable Costs \)780

Contribution Margin $520 Chaney provided service to 25 customers during the week. Determine the average amount the company charged each customer, the variable cost per customer, and the contribution margin ratio.

Question: Preparing absorption costing income statements, production less than sales

Refer to Exercise E21-19.

Requirements

  1. Prepare the May income statement using absorption costing.
  2. Is operating income using absorption costing higher or lower than variable costing income? Explain why.
  3. Determine the balance in Finished Goods Inventory as of May 31.

Question: Using variable costing, service company

Divine Pool Cleaning Service provides pool cleaning services to residential customers. The company has three employees, each assigned to specific customers. The company considers each employee’s territory as a business segment. The company incurs variable costs that include the employees’ wages, pool chemicals, and gas for the service vans. Fixed costs include depreciation on the service vans. Following is the income statement for the month of August:

Requirements

1. Calculate the contribution margin ratio for each business segment.

2. The business segments had the following number of customers: Byson, 80; Moore, 50; and Freeman, 110. Compute the service revenue per customer, variable cost per customer, and contribution margin per customer for each business segment.

3. Which business segment was most profitable? List some possible reasons why this segment was most profitable. How might the various reasons affect the company in the long term?
See all solutions

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