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.
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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