Answer:
beginning inventory = 3,200 units
units produced during the year = 23,000
units sold during the year = 21,000
ending inventory = 23,000 + 3,200 - 21,000 = 5,200 units
variable costs per unit:
- direct labor = $110
- direct materials = $160
- factory overhead = $85
- SG&A = $60
- total = $415
fixed costs:
- factory overhead = $245,000
- SG&A = $1,500,000
- total = $1,745,000
- per unit = $1,745,000 / 23,000 = $75.87 per unit
A) Variable costing calculates COGS using only variable costs since fixed costs are considered period costs and are not carried over.
carrying value of initial inventory:
- using variable costing = $415 x 3,200 units = $1,328,000
- using absorption costing = ($415 + $75.87) x 3,200 = $1,570,784
carrying value of ending inventory:
using variable costing = $415 x 5,200 units = $2,158,000
using absorption costing = ($415 + $75.87) x 5,200 = $2,552,524
B) net profit using variable costing:
total revenue = 21,000 x $620 = $13,020,000
- COGS = 21,000 x $415 = $8,715,000
gross contribution margin = $4,305,000
- total fixed costs = $1,745,000
net income = $2,560,000
C) net profit using absorption costing:
first we need to determine COGS = carrying value beginning inventory + (17,800 x variable manufacturing costs per unit) + (17,800 x fixed manufacturing costs per unit) = $1,570,784 + (17,800 x $355) + (17,800 x $10.6522) = $1,570,784 + $6,319,000 + $189,609 = $8,079,393
total revenue = $13,020,000
- COGS = $8,079,393
gross margin = $4,940,607
- variable SG&A = 17,800 x $60 = $1,068,000
- fixed SG&A = 17,800 x ($1,500,000 / 23,000) = $1,160,870
net income = $2,711,737
