Scribd
Upload
6 views

Assignment- Chapter-6

The document outlines exercises related to variable and absorption costing for different companies, focusing on calculating unit product costs and reconciling net operating incomes. It includes specific data for Ida Sidha Karya Company, Jorgensen Lighting, Inc., Shannon Company, and Walsh Company, detailing their production, sales, costs, and required calculations. The exercises aim to enhance understanding of costing methods and their impact on financial statements.

Uploaded by

alahraminvestment0021
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
6 views

Assignment- Chapter-6

The document outlines exercises related to variable and absorption costing for different companies, focusing on calculating unit product costs and reconciling net operating incomes. It includes specific data for Ida Sidha Karya Company, Jorgensen Lighting, Inc., Shannon Company, and Walsh Company, detailing their production, sales, costs, and required calculations. The exercises aim to enhance understanding of costing methods and their impact on financial statements.

Uploaded by

alahraminvestment0021
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 2

EXERCISE 6–1 Variable and Absorption Costing Unit Product Costs

LO6–1
Ida Sidha Karya Company is a family-owned company located in the village
of Gianyar on the island of Bali in Indonesia. The company produces a
handcrafted Balinese musical instrument called a gamelan that is similar to a
xylophone. The gamelans are sold for $850. Selected data for the company’s
operations last year follow:
Units in beginning inventory . . . . . . . . . . . . . . . . . . . 0
Units produced . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250
Units sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225
Units in ending inventory . . . . . . . . . . . . . . . . . . . . . 25
Variable costs per unit:
Direct materials . . . . . . . . . . . . . . . . . . . . . . . . . . . $100
Direct labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $320
Variable manufacturing overhead . . . . . . . . . . . $40
Variable selling and administrative . . . . . . . . . . $20
Fixed costs:
Fixed manufacturing overhead . . . . . . . . . . . . . . $60,000
Fixed selling and administrative . . . . . . . . . . . . . $20,000
1. Assume that the company uses absorption costing. Compute the unit
product cost for one gamelan.
2. Assume that the company uses variable costing. Compute the unit product
cost for one gamelan.
EXERCISE 6–3 Reconciliation of Absorption and Variable Costing Net
Operating Incomes LO6–3
Jorgensen Lighting, Inc., manufactures heavy-duty street lighting systems for
municipalities. The company uses variable costing for internal management
reports and absorption costing for external reports to shareholders, creditors,
and the government. The company has provided the following.
data:
Year 1 Year 2 Year 3
Inventories:
Beginning (units) . . . . . . . . . . . . . . . . . . . . . . . . . . . _200 170 180
Ending (units) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _170 180 220
Variable costing net operating income . . . . . . . . . . $ 1,080,400 $
1,032,400 $ 996,400
The company’s fixed manufacturing overhead per unit was constant at $560
for all three years.
Required:
1. Calculate each year’s absorption costing net operating income. Present
your answer in the form of a reconciliation report.
2. Assume in Year 4 that the company’s variable costing net operating
income was $984,400 and its absorption costing net operating income was
$1,012,400.
a. Did inventories increase or decrease during Year 4?
b. How much fixed manufacturing overhead cost was deferred or released
from inventory. during Year 4?
EXERCISE 6–7 Segmented Income Statement LO6–4
Shannon Company segments its income statement into its North and South
Divisions. The company’s
overall sales, contribution margin ratio, and net operating income are
$500,000, 46%, and $10,000, respectively. The North Division’s contribution
margin and contribution margin ratio are.
$150,000 and 50%, respectively. The South Division’s segment margin is
$30,000. The company has $90,000 of common fixed expenses that cannot
be traced to either division.
Required:
Prepare an income statement for Shannon Company that uses the
contribution format and is segmented by divisions. In addition, for the
company as a whole and for each segment, show each item on the
segmented income statements as a percentage of sales.
EXERCISE 6–9 Variable and Absorption Costing Unit Product Costs
and Income Statements LO6–1,
LO6–2, LO6–3
Walsh Company manufactures and sells one product. The following
information pertains to each
of the company’s first two years of operations:
Variable costs per unit:
Manufacturing:
Direct materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $25
Direct labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $15
Variable manufacturing overhead . . . . . . . . . . . . . . $5
Variable selling and administrative . . . . . . . . . . . . . . . $2
Fixed costs per year:
Fixed manufacturing overhead . . . . . . . . . . . . . . . . . . $250,000
Fixed selling and administrative expenses . . . . . . . . $80,000
During its first year of operations, Walsh produced 50,000 units and sold
40,000 units. During its second year of operations, it produced 40,000 units
and sold 50,000 units. The selling price of the company’s product is $60 per
unit.
Required:
1. Assume the company uses variable costing:
a. Compute the unit product cost for Year 1 and Year 2.
b. Prepare an income statement for Year 1 and Year 2.
2. Assume the company uses absorption costing:
a. Compute the unit product cost for Year 1 and Year 2.
b. Prepare an income statement for Year 1 and Year 2.
3. Explain the difference between variable costing and absorption costing net
operating income
in Year 1. Also, explain why the two net operating incomes differ in Year 2.

You might also like