Chapter 9 9-16 9-21 9-22
9-16 Variable and absorption costing, explaining operating-income differences. Nascar Motors assembles
and sells motor vehicles and uses standard costing. Actual data relating to April and May
...
Chapter 9 9-16 9-21 9-22
9-16 Variable and absorption costing, explaining operating-income differences. Nascar Motors assembles
and sells motor vehicles and uses standard costing. Actual data relating to April and May 2014 are as follows:
The selling price per vehicle is $24,000. The budgeted level of production used to calculate the budgeted fixed
manufacturing cost per unit is 500 units. There are no price, efficiency, or spending variances. Any productionvolume variance is written off to cost of goods sold in the month in which it occurs.
1.Prepare April and May 2014 income statements for Nascar Motors under (a) variable costing and (b)
absorption costing.
2.Prepare a numerical reconciliation and explanation of the difference between operating income for each
month under variable costing and absorption costing.
9-16 (30 min.) Variable and absorption costing, explaining operating-income differences.
1. Key inputs for income statement computations are
April May
Beginning inventory
Production
Goods available for sale
Units sold
Ending inventory
0
500
500
350
150
150
400
550
520
30
The budgeted fixed cost per unit and budgeted total manufacturing cost per unit under absorption costing are
April May
(a) Budgeted fixed manufacturing costs
(b) Budgeted production
(c) = (a) ÷ (b) Budgeted fixed manufacturing cost per unit
(d) Budgeted variable manufacturing cost per unit
(e) = (c) + (d) Budgeted total manufacturing cost per unit
$2,000,000
500
$4,000
$10,000
$14,000
$2,000,000
500
$4,000
$10,000
$14,000
9-1(a) Variable costing
April 2014 May 2014
Revenuesa $8,400,000 $12,480,000
Variable costs
Beginning inventory $ 0 $1,500,000
Variable manufacturing costsb 5,000,000 4,000,000
Cost of goods available for sale 5,000,000 5,500,000
Deduct ending inventoryc (1,500,000) (300,000)
Variable cost of goods sold 3,500,000 5,200,000
Variable operating costsd 1,050,000 1,560,000
Total variable costs 4,550,000 6,760,000
Contribution margin 3,850,000 5,720,000
Fixed costs
Fixed manufacturing costs 2,000,000 2,000,000
Fixed operating costs 600,000 600,000
Total fixed costs 2,600,000 2,600,000
Operating income $1,250,000 $3,120,000
a $24,000 × 350; $24,000 × 520 c $10,000 × 150; $10,000 × 30
b $10,000 × 500; $10,000 × 400 d $3,000 × 350; $3,000 × 520
(b) Absorption costing
April 2014 May 2014
Revenuesa $8,400,000 $12,480,000
Cost of goods sold
Beginning inventory $ 0 $2,100,000
Variable manufacturing costsb 5,000,000 4,000,000
Allocated fixed manufacturing costsc 2,000,000 1,600,000
Cost of goods available for sale 7,000,000 7,700,000
Deduct ending inventoryd (2,100,000) (420,000)
Adjustment for prod.-vol. variancee 0 400,000 U
Cost of goods sold 4,900,000 7,680,000
Gross margin 3,500,000 4,800,000
Operating costs
Variable operating costsf 1,050,000 1,560,000
Fixed operating costs 600,000 600,000
Total operating costs 1,650,000 2,160,000
Operating income $1,850,000 $ 2,640,000
a $24,000 × 350; $24,000 × 520 d $14,000 × 150; $14,000 × 30
b $10,000 × 500; $10,000 × 400 e $2,000,000 – $2,000,000; $2,000,000 – $1,600,000
c $4,000 × 500; $4,000 × 400 f $3,000 × 350; $3,000 × 520
2.
Absorption-costing
operating income
–
Variable-costing
operating income
=
Fixed manufacturing costs
in ending inventory
–
Fixed manufacturing costs
in beginning inventory
April:
$1,850,000 – $1,250,000 = ($4,000 × 150) – ($0)
$600,000 = $600,000
May:
9-2$2,640,000 – $3,120,000 = ($4,000 × 30) – ($4,000 × 150)
– $480,000 = $120,000 – $600,000
– $480,000 = – $480,000
The difference between absorption and variable costing is due solely to moving fixed manufacturing costs into
inventories as inventories increase (as in April) and out of inventories as they decrease (as in May).
9-21 Absorption and variable costing. (CMA) Osawa, Inc., planned and actually manufactured 200,000 units of
its single product in 2014, its first year of operation. Variable manufacturing cost was $20 per unit produced.
Variable operating (nonmanufacturing) cost was $10 per unit sold. Planned and actual fixed manufacturing costs
were $600,000. Planned and actual fixed operating (nonmanufacturing) costs totaled $400,000. Osawa sold
120,000 units of product at $40 per unit.
Beginning inventory, January 1, 2014 Ending inventory, December 31, 2014 2014 salesSelling price (to distributor)
Variable manufacturing cost per unit, including direct materials Variable operating (marketing) cost per unit sold
Fixed manufacturing costsDenominator-level machine-hours
Standard production rateFixed operating (marketing) costs
85,000 units 34,500 units 345,400 units $22.00 per unit $5.10 per unit $1.10 per unit sold $1,440,000
6,00050 units per machine-hour $1,080,000
1 Osawa’s 2014 operating income using absorption costing is (a) $440,000, (b) $200,000, (c) $600,000, (d)
$840,000, or (e) none of these. Show supporting calculations.
2 Osawa’s 2014 operating income using variable costing is (a) $800,000, (b) $440,000, (c) $200,000, (d)
$600,000, or (e) none of these. Show supporting calculations.
3 9-21 (10 min.) Absorption and variable costing.
45
The answers are 1(a) and 2(c). Computations:
6
1. Absorption Costing:
Revenuesa
Cost of goods sold:
Variable manufacturing costsb
Allocated fixed manufacturing costsc
Gross margin
$2,400,000
360,000
$4,800,000
2,760,000
2,040,000
Operating costs:
Variable operatingd
Fixed operating
Operating income
1,200,000
400,000 1,600,000
$ 440,000
7 8
a $40 × 120,000
9 b $20 × 120,000
10 c Fixed manufacturing rate = $600,000 ÷ 200,000 = $3 per output unit
11 Fixed manufacturing costs = $3 × 120,000
12 d $10 × 120,000
13
14
9-32. Variable Costing:
Revenuesa
Variable costs:
Variable manufacturing cost of goods soldb
Variable operating costsc
Contribution margin
Fixed costs:
Fixed manufacturing costs
Fixed operating costs
Operating income
$2,400,000
1,200,000
600,000
400,000
$4,800,000
3,600,000
1,200,000
1,000,000
$ 200,000
15
16 a $40 × 120,000
17 b $20 × 120,000
18 c $10 × 120,000
19
9-22 Absorption versus variable costing. Regina Company manufacturers a professional-grade vacuum cleaner
and began operations in 2014. For 2014, Regina budgeted to produce and sell 20,000 units. The company had no
price, spending, or efficiency variances and writes off production-volume variance to cost of goods sold. Ac
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