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Absorption / variable costing

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Exercise E5: 11-18 General Information
Summit Manufacturing, Inc. produces snow shovels. The selling price per snow shovel is $25

Costs involved in production are:
Direct materials $4.00
Direct labor $3.00
Variable manufacturing overhead $2.00
Total variable manufacturing costs per unit $9.00

Fixed manufacturing overhead per year $168,000
"In addition, the company has fixed selling and
administrative costs per year:" $152,000

Exercise E5-11 During the year, Summit produces 42,000 snow shovels and sells
38,500 snow shovels. What is the value of ending inventory using full costing?

Fixed Manufacturing Overhead Amount
Title Number
Fixed Manufacturing Overhead per unit Formula

Direct Materials per unit Amount
Title Amount
Title Amount
Title Amount
Cost per unit Formula

Shovels produced Number
Title Number
Title Formula
X ??? Amount
Value of ending inventory using full costing: Formula

Exercise E5-12 During the year, Summit produces 42,000 snow shovels and sells
38,500 snow shovels. What is the value of ending inventory using variable costing?

Direct Materials per unit Amount
Title Amount
Title Amount
Cost per unit Formula

Shovels produced Number
Title Number
Title Formula
X ??? Amount
Value of ending inventory under variable costing: Formula

Exercise E5-13 During the year, Summit produces 42,000 snow shovels and sells
38,500 snow shovels. Calculate the difference in full costing net income and variable costing net income
without preparing either income statement.

Shovels produced Number
Title Number
Title Formula
X ??? Amount
Difference in net income: Formula

Exercise E5-14 During the year, Summit produces 42,000 snow shovels and sells
38,500 snow shovels. What is the cost of goods sold using full costing?

Title Amount
Divided by ??? Number
Fixed Manufacturing Overhead per unit Formula

Direct Materials per unit Amount
Title Amount
Title Amount
Title Amount
Cost per unit Formula

Title Number
X ??? Amount
Cost of goods sold using full costing: Formula

Exercise E5-15 During the year, Summit produces 42,000 snow shovels and sells
38,500 snow shovels. What is the variable cost of goods sold?

Title Amount
Title Amount
Title Amount
Cost per unit Formula

Title Number
Title Amount
Variable cost of goods sold: Formula

Exercise E5-16 During the year, Summit produces 42,000 snow shovels and sells
38,500 snow shovels. What is net income using full costing?
The following information relates to Porter Manufacturing for fiscal 2008, the company's
first year of operation:

Selling price per unit
Direct material per unit
Direct labor per unit
Variable manufacturing overhead per unit
Variable selling cost per dollar of sales
Annual fixed manufacturing overhead
Annual fixed selling expense
Annual fixed administrative expense
Units produced
Units sold

Required
a. Prepare an income statement using full costing.

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Solution Summary

The solution explains two questions relating to absorption and variable costing

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Accounting Questions

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Question 2

Jay Manufacturing's sales slumped badly in 2006 due to so many people purchasing gifts online. The company's income statement showed the following results from selling 500,000 units of product: Net sales, $2,000,000; total costs and expenses, $2,500,000; and net loss of $500,000. Costs and expenses consisted of the following:

Total Variable Fixed
Cost of goods sold $2,000,000 $1,300,000 $700,000
Selling expenses 200,000 50,000 150,000
Administrative expenses 300,000 150,000 150,000
$2,500,000 $1,500,000 $1,000,000

Management is considering the following alternative for 2007:
Purchase new automated equipment that will change the proportion between variable and fixed costs to 40% variable and 60% fixed.

Instructions
A. Determine the selling price per unit.
B. Compute the break-even point in dollars for 2006.
C. Compute the break-even point in dollars under the alternative course of action for 2007.
D. Which course of action do you recommend? Justify your answer.

Question 3

Fresh Air Products manufactures and sells a variety of camping products. Recently the company opened a new plant to manufacture a deluxe portable cooking unit. Cost and sales data for the first month of operations are shown below:

Manufacturing Costs
Fixed overhead $ 108,000
Variable overhead $ 3 per unit
Direct labor $ 12 per unit
Direct material $ 30 per unit

Beginning inventory 0 units
Units produced 12,000
Units sold 10,000

Selling and administrative costs
Fixed $ 200,000
Variable $ 4 per unit sold

The portable cooking unit sells for $110. Management is interested in the opening month's results and has asked for an income statement.
Instructions
Assume the company uses variable costing.
a. Calculate the production cost per unit, and prepare an income statement for the month of June 2005.
b. Explain the amount by which absorption costing income would differ from variable costing income. (Compute difference without computing absorption costing income

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