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

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

           

	Selling price..............................................	$138
	Units in beginning inventory.....................	0
	Units produced..........................................	7,200
	Units sold..................................................	7,000
	Units in ending inventory..........................	200
	Variable costs per unit:
	Direct materials......................................	$42
	Direct labor............................................	$32
	Variable manufacturing overhead..........	$1
	Variable selling and administrative.......	$8
	Fixed costs:
	Fixed manufacturing overhead..............	$280,800
	Fixed selling and administrative............	$98,000

            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.........................................	$42
	Direct labor................................................	32
	Variable manufacturing overhead.............	1
	Unit product cost.......................................	$75
	Absorption costing:
	Direct materials.........................................	$ 42
	Direct labor................................................	32
	Variable manufacturing overhead.............	1
	Fixed manufacturing overhead..................	39
	Unit product cost.......................................	$114

c. & d. Income statements

	Variable costing income statement
	Sales..................................................................		$966,000
	Less variable expenses:
	Variable cost of goods sold:
	Beginning inventory...................................	$          0
	Add variable manufacturing costs..............	540,000
	Goods available for sale.............................	540,000
	Less ending inventory................................	15,000
	Variable cost of goods sold...........................	525,000
	Variable selling and administrative...............	56,000	581,000
	Contribution margin.........................................		385,000
	Less fixed expenses:
	Fixed manufacturing overhead......................	280,800
	Fixed selling and administrative...................	98,000	378,800
	Net operating income.......................................		$   6,200

	Absorption costing income statement..............
	Sales..................................................................		$966,000
	Cost of goods sold:
	Beginning inventory......................................	$          0
	Add cost of goods manufactured...................	820,800
	Goods available for sale................................	820,800
	Less ending inventory...................................	22,800	798,000
	Gross margin.....................................................		168,000
	Selling and administrative expenses expenses:
	Variable selling and administrative...............	56,000
	Fixed selling and administrative...................	98,000	154,000
	Net operating income.......................................		$ 14,000

e. Reconciliation

	Variable costing net operating income............................	$ 6,200
	Add fixed manufacturing overhead costs deferred in inventory under absorption costing.............................	7,800
	Absorption costing net operating income.......................	$14,000

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

    145. The Dean Company produces and sells a single product. The following data refer to the year just completed:

           

	Beginning inventory........................................................	0
	Units produced................................................................	20,000
	Units sold........................................................................	19,000
	Selling price per unit.......................................................	$350
	Selling and administrative expenses:
	Variable per unit..........................................................	$10
	Fixed (total)..................................................................	$225,000
	Manufacturing costs:
	Direct materials cost per unit.......................................	$190
	Direct labor cost per unit..............................................	$40
	Variable manufacturing overhead cost per unit...........	$25
	Fixed manufacturing overhead (total)..........................	$250,000

            Assume that direct labor is a variable cost.

           

            Required:

           

a.      Compute the cost of a single unit of product under both the absorption costing and variable costing approaches.

b.     Prepare an income statement for the year using absorption costing.

c.      Prepare an income statement for the year using variable costing.

d.     Reconcile the absorption costing and variable costing net operating income figures in (b) and (c) above.

            Ans: 

           

a.	Cost per unit under absorption costing:
	Direct materials...................................................	$190.00
	Direct labor.........................................................	40.00
	Variable overhead...............................................	25.00
	Fixed overhead ($250,000 / 20,000)...................	12.50
	Total cost per unit...............................................	$267.50
	Cost per unit under variable costing:
	Direct materials...................................................	$190.00
	Direct labor.........................................................	40.00
	Variable overhead...............................................	25.00
	Total cost per unit...............................................	$255.00

b.	Absorption costing income statement:
	Sales................................................................................		$6,650,000
	Cost of goods sold:
	Beginning inventory.....................................................	$             0
	Add cost of goods manufactured (20,000 @ $267.50)	5,350,000
	Cost of goods available................................................	5,350,000
	Less ending inventory (1,000 @ $267.50)...................	267,500	5,082,500
	Gross profit......................................................................		1,567,500
	Selling and administrative expenses expenses:
	[($10 × 19,000) + $225,000]........................................		415,000
	Net operating income......................................................		$1,152,500

c.	Variable costing income statement:
	Sales................................................................................		$6,650,000
	Cost of goods sold:
	Beginning inventory....................................................	$              0
	Cost of goods manufactured (20,000 @ $255)............	5,100,000
	Cost of goods available................................................	5,100,000
	Less ending inventory (1,000 @ $255).......................	255,000
	Variable cost of goods sold.............................................	4,845,000
	Variable selling and administrative expenses:
	(19,000 @ $10)............................................................	190,000	5,035,000
	Contribution margin........................................................		1,615,000
	Less fixed expenses:
	Manufacturing overhead..............................................	250,000
	Selling and administrative...........................................	225,000	475,000
	Net operating income......................................................		$1,140,000

d.	Net operating income under variable costing.................	$1,140,000
	Add fixed manufacturing overhead costs deferred in inventory under absorption costing (1,000 @ $12.50)	12,500
	Net operating income under absorption costing.............	$1,152,500

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

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

           

	Selling price..............................................	$121
	Units in beginning inventory.....................	400
	Units produced..........................................	6,800
	Units sold..................................................	6,900
	Units in ending inventory..........................	300
	Variable costs per unit:
	Direct materials......................................	$35
	Direct labor............................................	$36
	Variable manufacturing overhead..........	$3
	Variable selling and administrative.......	$4
	Fixed costs:
	Fixed manufacturing overhead..............	$197,200
	Fixed selling and administrative............	$96,600

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

c.      Without preparing an income statement, determine the absorption costing net operating income for the month. (Hint: Use the reconciliation method.)

            Ans: 

           

a.	Variable costing unit product cost
	Direct materials.......................................	$35
	Direct labor.............................................	36
	Variable manufacturing overhead...........	3
	Unit product cost.....................................	$74

b.	Variable costing income statement
	Sales........................................................		$834,900
	Less variable expenses:
	Variable cost of goods sold:
	Beginning inventory.........................	$ 29,600
	Add variable manufacturing costs....	503,200
	Goods available for sale...................	532,800
	Less ending inventory......................	22,200
	Variable cost of goods sold.................	510,600
	Variable selling and administrative.....	27,600	538,200
	Contribution margin...............................		296,700
	Less fixed expenses:
	Fixed manufacturing overhead............	197,200
	Fixed selling and administrative.........	96,600	293,800
	Net operating income.............................		$   2,900

c.	Computation of absorption costing net operating income
	Fixed manufacturing overhead per unit................................	$29.00
	Change in inventories (units)................................................	(100)
	Variable costing net operating income.................................	$2,900
	Deduct fixed manufacturing overhead costs released from inventory under absorption costing...................................	(2,900)
	Absorption costing net operating income.............................	$      0

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

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

           

	Selling price..............................................	$77
	Units in beginning inventory.....................	0
	Units produced..........................................	6,700
	Units sold..................................................	6,500
	Units in ending inventory..........................	200
	Variable costs per unit:
	Direct materials......................................	$27
	Direct labor............................................	$13
	Variable manufacturing overhead..........	$5
	Variable selling and administrative.......	$7
	Fixed costs:
	Fixed manufacturing overhead..............	$100,500
	Fixed selling and administrative............	$58,500

            Required:

           

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

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

c.      Without preparing an income statement, determine the absorption costing net operating income for the month. (Hint: Use the reconciliation method.)

            Ans: 

           

a.	Variable costing unit product cost
	Direct materials.......................................	$27
	Direct labor.............................................	13
	Variable manufacturing overhead...........	5
	Unit product cost.....................................	$45

b.	Variable costing income statement
	Sales........................................................		$500,500
	Less variable expenses:
	Variable cost of goods sold:
	Beginning inventory.........................	$          0
	Add variable manufacturing costs....	301,500
	Goods available for sale...................	301,500
	Less ending inventory......................	9,000
	Variable cost of goods sold.................	292,500
	Variable selling and administrative.....	45,500	338,000
	Contribution margin...............................		162,500
	Less fixed expenses:
	Fixed manufacturing overhead............	100,500
	Fixed selling and administrative.........	58,500	159,000
	Net operating income.............................		$   3,500

c.	Computation of absorption costing net operating income
	Fixed manufacturing overhead per unit..............................	$15.00
	Change in inventories (units)..............................................	200
	Variable costing net operating income................................	$3,500
	Add fixed manufacturing overhead costs deferred in inventory under absorption costing.................................	3,000
	Absorption costing net operating income...........................	$6,500

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

    148. Olguin Corporation produces a single product and has the following cost structure:

           

	Number of units produced each year....................	4,000
	Variable costs per unit:
	Direct materials..................................................	$15
	Direct labor........................................................	$13
	Variable manufacturing overhead......................	$7
	Variable selling and administrative expenses....	$5
	Fixed costs per year:
	Fixed manufacturing overhead..........................	$328,000
	Fixed selling and administrative expenses.........	$324,000

            Required:

           

a.      Compute the unit product cost under absorption costing. Show your work!

b.     Compute the unit product cost under variable costing. Show your work!

            Ans: 

a.	Absorption Costing:
	Direct materials............................................................................	$  15
	Direct labor...................................................................................	13
	Variable manufacturing overhead................................................	7
	Total variable production cost......................................................	35
	Fixed manufacturing overhead ($328,000/4,000 units of product).....................................................................................	82
	Unit product cost..........................................................................	$117
b.	Variable Costing:
	Direct materials............................................................................	$15
	Direct labor...................................................................................	13
	Variable manufacturing overhead................................................	7
	Unit product cost..........................................................................	$35

           

    149. Quates Corporation produces a single product and has the following cost structure:

           

	Number of units produced each year..............................	3,000
	Variable costs per unit:
	Direct materials............................................................	$27
	Direct labor..................................................................	$96
	Variable manufacturing overhead................................	$1
	Variable selling and administrative expenses..............	$4
	Fixed costs per year:
	Fixed manufacturing overhead....................................	$219,000
	Fixed selling and administrative expenses...................	$153,000

            Required:

           

            Compute the unit product cost under absorption costing. Show your work!

            Ans: 

	Direct materials...............................................................................	$  27
	Direct labor.....................................................................................	96
	Variable manufacturing overhead...................................................	1
	Total variable production cost........................................................	124
	Fixed manufacturing overhead ($219,000/3,000 units of product)	73
	Unit product cost.............................................................................	$197

           

    150. Davitt Corporation produces a single product and has the following cost structure:

           

	Number of units produced each year..............................	1,000
	Variable costs per unit:
	Direct materials............................................................	$57
	Direct labor..................................................................	$20
	Variable manufacturing overhead................................	$2
	Variable selling and administrative expenses..............	$3
	Fixed costs per year:
	Fixed manufacturing overhead....................................	$88,000
	Fixed selling and administrative expenses...................	$24,000

            Required:

           

            Compute the unit product cost under variable costing. Show your work!

            Ans: 

	Direct materials...............................................................	$57
	Direct labor......................................................................	20
	Variable manufacturing overhead...................................	2
	Unit product cost.............................................................	$79

           

    151. Murphy Inc., which produces a single product, has provided the following data for its most recent month of operation:

           

	Number of units produced...............................................	7,000
	Variable costs per unit:
	Direct materials............................................................	$37
	Direct labor..................................................................	$43
	Variable manufacturing overhead................................	$5
	Variable selling and administrative expenses..............	$1
	Fixed costs:
	Fixed manufacturing overhead....................................	$84,000
	Fixed selling and administrative expenses...................	$119,000

            The company had no beginning or ending inventories.

           

            Required:

           

a.      Compute the unit product cost under absorption costing. Show your work!

b.     Compute the unit product cost under variable costing. Show your work!

            Ans: 

a.	Absorption costing:
	Direct materials..........................................................................	$37
	Direct labor.................................................................................	43
	Variable manufacturing overhead..............................................	5
	Total variable production cost....................................................	85
	Fixed manufacturing overhead ($84,000/7,000 units of product)...................................................................................	12
	Unit product cost........................................................................	$97
b.	Variable costing:
	Direct materials..........................................................................	$37
	Direct labor.................................................................................	43
	Variable manufacturing overhead..............................................	5
	Unit product cost........................................................................	$85

           

    152. Vancott Inc., which produces a single product, has provided the following data for its most recent month of operation:

           

	Number of units produced...............................................	6,000
	Variable costs per unit:
	Direct materials............................................................	$93
	Direct labor..................................................................	$58
	Variable manufacturing overhead................................	$1
	Variable selling and administrative expenses..............	$1
	Fixed costs:
	Fixed manufacturing overhead....................................	$192,000
	Fixed selling and administrative expenses...................	$348,000

            The company had no beginning or ending inventories.

           

            Required:

           

            Compute the unit product cost under absorption costing. Show your work!

            Ans: 

	Direct materials...............................................................................	$ 93
	Direct labor......................................................................................	58
	Variable manufacturing overhead...................................................	1
	Total variable production cost.........................................................	152
	Fixed manufacturing overhead ($192,000/6,000 units of product)	32
	Unit product cost.............................................................................	$184

           

    153. Schlenz Inc., which produces a single product, has provided the following data for its most recent month of operation:

           

	Number of units produced...............................................	6,000
	Variable costs per unit:
	Direct materials............................................................	$12
	Direct labor..................................................................	$34
	Variable manufacturing overhead................................	$4
	Variable selling and administrative expenses..............	$2
	Fixed costs:
	Fixed manufacturing overhead....................................	$486,000
	Fixed selling and administrative expenses...................	$522,000

            The company had no beginning or ending inventories.

           

            Required:

           

            Compute the unit product cost under variable costing. Show your work!

            Ans: 

	Direct materials.........................................	$12
	Direct labor................................................	34
	Variable manufacturing overhead.............	4
	Unit product cost.......................................	$50

           

    154. Miller Company produces a single product. The company had the following results for its first two years of operation:

           

		Year 1	Year 2
	Sales..........................................................	$1,200,000	$1,200,000
	Cost of goods sold.....................................	800,000	680,000
	Gross margin.............................................	400,000	520,000
	Selling and administrative expenses.........	300,000	300,000
	Net operating income................................	$  100,000	$  220,000

            In Year 1, the company produced and sold 40,000 units of its only product; in Year 2, the company again sold 40,000 units, but increased production to 50,000 units. The company's variable production cost is $5 per unit and its fixed manufacturing overhead cost is $600,000 a year. Fixed manufacturing overhead costs are applied to the product on the basis of each year's unit production (i.e., a new fixed overhead rate is computed each year). Variable selling and administrative expenses are $2 per unit sold.

           

            Required:

           

a.      Compute the unit product cost for each year under absorption costing and under variable costing.

b.     Prepare an income statement for each year, using the contribution approach with variable costing.

c.      Reconcile the variable costing and absorption costing income figures for each year.

d.     Explain why the net operating income for Year 2 under absorption costing was higher than the net operating income for Year 1, although the same number of units were sold in each year.

            Ans: 

                                                           

a.	Cost per unit under absorption costing:
		Year 1	Year 2
	Variable production cost per unit.......................	$ 5	$ 5
	Fixed manufacturing overhead cost:
	($600,000/40,000)...............................................	15
	($600,000/50,000)...............................................		12
	Unit product cost.................................................	$20	$17
	Cost per unit under variable costing:
		Year 1	Year 2
	Variable production cost per unit.......................	$5	$5

b. Income statements for each year under variable costing:

		Year 1	Year 2
	Sales......................................................................	$1,200,000	$1,200,000
	Cost of goods sold ($5 × 40,000)..........................	200,000	200,000
	Variable selling and administrative expense ($2 × 40,000).....................................................	80,000	80,000
	Contribution margin..............................................	920,000	920,000
	Fixed expenses:
	Fixed manufacturing overhead..........................	600,000	600,000
	Fixed selling and administrative expense..........	220,000	220,000
	Net operating income............................................	$  100,000	$  100,000

c. Reconciliation of absorption costing and variable costing net operating incomes:

		Year 1	Year 2
	Net operating income under variable costing..................	$100,000	$100,000
	Fixed manufacturing overhead deferred in (released from) inventory: Year 2 (10,000 units × $12 per unit)		120,000
	Net operating income under absorption costing..............	$100,000	$220,000

d.     The increase in production in Year 2, in the face of level sales, caused a buildup of inventory and a deferral of a portion of the overhead costs of Year 2 to the next year. This deferral of cost relieved Year 2 of $120,000 of fixed manufacturing overhead. Income for Year 2 was $120,000 higher than income of Year 1, even though the same number of units was sold each year. By increasing production and building up inventory, the company was able to increase profits without increasing sales. This is major criticism of the absorption costing approach.

            LO:  2,3,4    

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

           

	Selling price..............................................	$140
	Units in beginning inventory.....................	300
	Units produced..........................................	4,300
	Units sold..................................................	4,500
	Units in ending inventory..........................	100
	Variable costs per unit:
	Direct materials......................................	$25
	Direct labor............................................	$51
	Variable manufacturing overhead..........	$7
	Variable selling and administrative.......	$6
	Fixed costs:
	Fixed manufacturing overhead..............	$150,500
	Fixed selling and administrative............	$72,000

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

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

            Ans: 

            a. Variable costing income statement

	Sales..........................................................		$630,000
	Less variable expenses:
	Variable cost of goods sold:
	Beginning inventory............................	$ 24,900
	Add variable manufacturing costs......	356,900
	Goods available for sale......................	381,800
	Less ending inventory.........................	8,300
	Variable cost of goods sold.................	373,500
	Variable selling and administrative.......	27,000	400,500
	Contribution margin..................................		229,500
	Less fixed expenses:
	Fixed manufacturing overhead..............	150,500
	Fixed selling and administrative............	72,000	222,500
	Net operating income................................		$   7,000

b. Absorption costing income statement

	Sales..........................................................		$630,000
	Cost of goods sold:
	Beginning inventory...............................	$ 35,400
	Add cost of goods manufactured...........	507,400
	Goods available for sale.........................	542,800
	Less ending inventory............................	11,800	531,000
	Gross margin.............................................		99,000
	Selling and administrative expenses expenses:
	Variable selling and administrative.......	27,000
	Fixed selling and administrative............	72,000	99,000
	Net operating income................................		$          0

            LO:  2     Level:  Hard