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ALL QUESTIONS MUST BE ANSWERED -- PLEASE DO NOT ANSWER IF YOU ARE UNABLE TO ANSWER...

ALL QUESTIONS MUST BE ANSWERED -- PLEASE DO NOT ANSWER IF YOU ARE UNABLE TO ANSWER ALL QUESTIONS.  

ANSWERS TO A & B MUST BE IN NUMBER SENTENCE FORM WITH SUPPORTING CALCULATIONS. ANSWERS CANNOT BE PRESENTED IN TABLE FORM.

The Quality Corporation produces and sells a single product. The following data refers to the year just completed:

List of Account Titles

Beginning inventory

0

Units produced

9,000

Units sold

7,000

Selling price per unit

$

47

Selling and administrative expenses:

Variable Cost per unit

$

4

Fixed Cost per year

$

58,000

Manufacturing costs:

Direct materials cost per unit

$

10

Direct labor cost per unit

$

6

Variable manufacturing overhead cost per unit

$

5

Fixed manufacturing overhead per year

$

90,000

a. If the managers use the variable costing approach to prepare an income statement, what is the dollar amount for the contribution margin account that would be reported on this type of income statement?  Show all detailed supporting calculations that were used to determine the final answer. Answer is to be in numeric sentence form, not done using a table/chart.

b. If the managers use the absorption (traditional financial) costing approach to prepare an income statement, what is the dollar amount for the gross margin account that would be reported on this type of income statement? Show all detailed supporting calculations that were used to determine the final answer. Answer is to be in numeric sentence form, not done using a table/chart.  

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Homework Answers

Answer #1

a) variable costing

Sales (7000*47) 329000
Less; variable cost of goods sold
Direct material 70000
Direct labour 42000
variable manufacturing overhead 35000
Total variable cost of goods sold 147000
Manufacturing margin 182000
Variable selling and administrative 28000
Contribution margin 154000
Fixed cost
Fixed manufacturing overhead 90000
Fixed selling and administrative 58000 148000
Net operating income 6000

Contribution margin = $154000

b) Absorption costing

Sales (7000*47) 329000
Less; cost of goods sold
Direct material 70000
Direct labour 42000
variable manufacturing overhead 35000
Fixed manufacturing overhead 70000
Total cost of goods sold 217000
Gross margin 112000
Variable selling and administrative 28000
Fixed selling and administrative 58000 86000
Net operating income 26000

Gross margin = $112000

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