Question

Adam Tools produces screwdrivers and had 1,700 in inventory at the beginning of the year. It...

Adam Tools produces screwdrivers and had 1,700 in inventory at the beginning of the year. It has a variable manufacturing cost of $5.00 per unit, a variable selling cost of $0.75 per unit; a fixed manufacturing cost of $45,000 per year; and a fixed selling and administrative cost of $24,000 per year. The selling price is $14.00 per screwdriver. During the year, 18,000 screwdrivers were produced and 18,400 were sold. Assume the same unit costs in all years.

a. What is the product cost per screwdriver using variable costing?

b. What is the product cost per screwdriver using full costing?

c. Prepare an income statement using variable costing. Omit the statement heading.

d. Prepare an income statement using full costing. Omit the statement heading.

40 points

Formatting help for c. & d.

c.​Sales ( Qty × $)​

​Variable manufacturing cost (Qty × $)​​$

​Variable selling cost (Qty × $)​​   ​

​Contribution margin​​

​Fixed production costs​​

​Fixed selling & administrative costs​ ​​

​Net income​​$

d.​Sales (Qty × $)​​$

​Cost of goods sold (Qty × $)​​

​Gross margin

​Selling & administrative [$24,000 + ($0.75 × 18,400)]​  

​Net income​​$

Business   Accounting   
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Homework Answers

Answer #1

a.

Product cost using variable costing = Variable manufacturing cost = $5.00

b.

Product costs using full costing = Variable manufacturing cost + Fixed manufacturing cost per screwdrivers

= $5.00 + ($45,000 / 18,000)

= $5.00 + $2.50

= $7.50

c.  

Sales (18,400 * $14.00)

$257, 600
(-) Variable manufacturing cost (18,400 * $5.00) $92,000
(-) Variable selling cost (18,400 * $0.75) $13,800 $105,800
Contribution margin $151,800
(-) Fixed production costs $45,000
(-) Fixed selling and administrative costs $24,000 $69,000
Net income $82,800

d.  

Sales (18,400 * $14.00) $257,600
(-) Cost of Goods sold (18,400 * $7.50) $138,000
Gross margin $119,600
(-) Selling and administrative [$24,000 + ($0.75 * 18,400) $37,800
Net income $81,800
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