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Chapter 21: Q21-19E (page 1171)

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

Refer to your answers to Exercise E21-16. In May 2018, ReVitalAde produced 22,000 cases of powdered drink mix and sold 23,000 cases, of which 1,000 were produced in April. 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 and $9,000 selling and administrative).

Requirements

  1. Prepare the May income statement using variable costing.
  2. Determine the balance in the Finished Goods Inventory as of May 31.

Short Answer

Expert verified

Answer

  1. Operating income is $291,000
  2. Finished goods inventory as of May 31 is 0.

Step by step solution

01

Income statement using variable costing

Particulars

Amount

Net sales revenue ($29x23,000)

$667,000

Less: Variable costs ($12x23,000)

$276,000

Contribution margin

$391,000

Less: Fixed costs

Fixed costs of goods sold

$91,000

Fixed selling and administrative cost

$9,000

Operating Income

$291,000

02

Balance of finished goods inventory as of May 31.

Ending balance in Finished Goods Inventory = Beginning balance + Units Produced − Units sold

= 1,000 units + 22,000 units - 23,000 units

= 0 units

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Most popular questions from this chapter

When units produced exceed units sold, how does operating income differ between variable costing and absorption costing? Why?

When should a company use absorption costing when setting sales prices? When should it use variable costing?

How are absorption costing and variable costing the same? How are they different?

Computing inventory balances

Zeng Company reports the following data:

Finished Goods Inventory:

Beginning balance, in units 300 Units

Produced 2,900

Units sold (1,600)

Ending balance, in units 1,600

Production Costs: Variable manufacturing costs per unit $ 57

Total fixed manufacturing costs 26,100

Calculate the product cost per unit and the total cost of the 1,600 units in ending inventory using absorption costing and variable costing.

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.
See all solutions

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