Question

Vero, Inc. began operations at the start of the current year, having a production target of...

Vero, Inc. began operations at the start of the current year, having a production target of 70,000 units. Actual production totaled 70,000 units, and the company sold 95% of its manufacturing output at $60 per unit. The following costs were incurred:

Manufacturing:
Direct materials used $ 260,000
Direct labor 410,000
Variable manufacturing overhead 380,000
Fixed manufacturing overhead 700,000
Selling and administrative:
Variable 190,000
Fixed 640,000


Required:
A. Assuming the use of variable costing, compute the cost of Vero’s ending finished-goods inventory.
B. Compute the company's contribution margin. Would Vero disclose the contribution margin on a variable-costing income statement or an absorption-costing income statement?
C. Assuming the use of absorption costing, how much fixed selling and administrative cost would Vero include in the ending finished-goods inventory?
D. Compute the company's gross margin.

Homework Answers

Answer #1

a) variable costing per unit = (260000+410000+380000)/70000 = 15 per unit

Ending finished goods inventory under variable costing = 15*3500 = $52500

b) Contribution margin = Sales-Variable cost = (60-15)*66500-190000 = 2802500

Contribution margin would disclose under Variable costing method

c) Fixed selling and administrative cost would not be included in ending finished goods inventory either variable costing or absorption Costing method

d) Gross margin = (60-25)*66500 = 2327500

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