Helmers Corporation manufactures a variety of products. Variable costing net operating income last year was $86,000 and this year was $103,000. Last year, $32,000 in fixed manufacturing overhead costs were released from inventory under absorption costing. This year, $12,000 in fixed manufacturing overhead costs were deferred in inventory under absorption costing.

Helmers Corporation manufactures a variety of products. Variable costing net operating income last year was $86,000 and this year was $103,000. Last year, $32,000 in fixed manufacturing overhead costs were released from inventory under absorption costing. This year, $12,000 in fixed manufacturing overhead costs were deferred in inventory under absorption costing.

    137. What was the absorption costing net operating income last year?

            A)      $106,000

            B)      $86,000

            C)      $54,000

            D)      $118,000

           

            Ans:  C    

            Solution:

            Absorption costing net income = Variable costing net operating income – Fixed manufacturing overhead released = $86,000 – $32,000 = $54,000

    138. What was the absorption costing net operating income this year?

            A)      $81,000

            B)      $83,000

            C)      $115,000

            D)      $123,000

           

           Ans:  C    

            Solution:

            Absorption costing net income = Variable costing net operating income + Fixed manufacturing overhead deferred = $103,000 + $12,000 = $115,000

Use the following to answer questions 139-140:

Norenberg Corporation manufactures a variety of products. The following data pertain to the company's operations over the last two years:

	Variable costing net operating income, last year............	$88,600
	Variable costing net operating income, this year............	$96,100
	Increase in ending inventory, last year............................	600 units
	Decrease in ending inventory, this year..........................	2,300 units
	Fixed manufacturing overhead cost per unit...................	$7

    139. What was the absorption costing net operating income last year?

            A)      $92,800

            B)      $88,600

            C)      $84,400

            D)      $76,700

           

            Ans:  A    

            Solution:

           

            Fixed manufacturing overhead deferred = 600 × $7 = $4,200

Absorption costing net income = Variable costing net operating income + Fixed manufacturing overhead deferred = $88,600 + $4,200 = $92,800

    140. What was the absorption costing net operating income this year?

            A)      $80,000

            B)      $100,500

            C)      $108,000

            D)      $112,200

           

            Ans:  A    

            Solution:

           

            Fixed manufacturing overhead released = 2,300 × $7 = $16,100

Absorption costing net income = Variable costing net operating income − Fixed manufacturing overhead released = $96,100 − $16,100 = $80,000

Use the following to answer questions 141-142:

Rosal Corporation manufactures a variety of products. Variable costing net operating income was $74,700 last year and was $82,300 this year. Last year, ending inventory increased by 2,600 units. This year, ending inventory decreased by 1,400 units. Fixed manufacturing overhead cost is $5 per unit.

    141. What was the absorption costing net operating income last year?

            A)      $61,700

            B)      $74,700

            C)      $80,700

            D)      $87,700

           

            Ans:  D    

            Solution:

            Fixed manufacturing overhead deferred = $5 × 2,600 = $13,000

Absorption costing net income = Variable costing net operating income + Fixed manufacturing overhead deferred = $74,700 + $13,000 = $87,700

    142. What was the absorption costing net operating income this year?

            A)      $75,300

            B)      $89,300

            C)      $76,300

            D)      $68,700

           

            Ans:  A    

            Solution:

           

            Fixed manufacturing overhead released = $5 × 1,400 = $7,000

Absorption costing net income = Variable costing net operating income − Fixed manufacturing overhead released = $82,300 − $7,000 = $75,300

Essay Questions

    143. Lehne Company, which has only one product, has provided the following data concerning its most recent month of operations:

           

	Selling price..............................................	$112
	Units in beginning inventory.....................	500
	Units produced..........................................	2,600
	Units sold..................................................	3,000
	Units in ending inventory..........................	100
	Variable costs per unit:
	Direct materials......................................	$13
	Direct labor............................................	$49
	Variable manufacturing overhead..........	$6
	Variable selling and administrative.......	$10
	Fixed costs:
	Fixed manufacturing overhead..............	$80,600
	Fixed selling and administrative............	$15,000

            The company produces the same number of units every month, although the sales in units vary from month to month. The company's variable costs per unit and total fixed costs have been constant from month to month.

           

            Required:

           

a.      What is the unit product cost for the month under variable costing?

b.     What is the unit product cost for the month under absorption costing?

c.      Prepare an income statement for the month using the contribution format and the variable costing method.

d.     Prepare an income statement for the month using the absorption costing method.

e.      Reconcile the variable costing and absorption costing net operating incomes for the month.

            Ans:   

a. & b. Unit product costs

	Variable costing:
	Direct materials.........................................	$13
	Direct labor................................................	49
	Variable manufacturing overhead.............	6
	Unit product cost.......................................	$68
	Absorption costing:
	Direct materials.........................................	$13
	Direct labor................................................	49
	Variable manufacturing overhead.............	6
	Fixed manufacturing overhead..................	31
	Unit product cost.......................................	$99

c. & d. Income statements

	Variable costing income statement
	Sales......................................................................		$336,000
	Less variable expenses:
	Variable cost of goods sold:
	Beginning inventory........................................	$ 34,000
	Add variable manufacturing costs..................	176,800
	Goods available for sale..................................	210,800
	Less ending inventory.....................................	6,800
	Variable cost of goods sold................................	204,000
	Variable selling and administrative...................	30,000	234,000
	Contribution margin..............................................		102,000
	Less fixed expenses:
	Fixed manufacturing overhead..........................	80,600
	Fixed selling and administrative........................	15,000	95,600
	Net operating income............................................		$  6,400

	Absorption costing income statement
	Sales......................................................................		$336,000
	Cost of goods sold:
	Beginning inventory...........................................	$ 49,500
	Add cost of goods manufactured.......................	257,400
	Goods available for sale.....................................	306,900
	Less ending inventory........................................	9,900	297,000
	Gross margin.........................................................		39,000

	Selling and administrative expenses expenses:
	Variable selling and administrative...................	30,000
	Fixed selling and administrative........................	15,000	45,000
	Net operating income............................................		$(  6,000)

e. Reconciliation

	Variable costing net operating income............................	$ 6,400
	Deduct fixed manufacturing overhead costs released from inventory under absorption costing....................	(12,400)
	Absorption costing net operating income.......................	$(6,000)

           

            AICPA FN:  Reporting, Measurement     LO:  1,2,3     Level:  Hard