Question

During the most recent year, Bledsoe Corp. had the following data:

Beginning inventory in units	-
Units produced	14,500
Units sold ($120 per unit)	8,200
Variable costs per unit:
Direct materials	$ 13
Direct labor	$ 16
Variable overhead	$8
Fixed costs:
Fixed overhead per unit produced	$ 23
Fixed selling and administrative	$ 135,000

Required:

A. How many units are in ending inventory?
B. Using absorption costing, calculate the per-unit product cost. What is the value of ending inventory? C. Using variable costing, calculate the per-unit product cost. What is the value of ending inventory?
D. Prepare an income statement using absorption costing.
E. Prepare an income statement using variable costing.

Answer 1

Ans. A	Ending inventory units = Units produced - Units sold
	14,500 - 8,200
	6,300 units
Ans. B	In absorption costing method, the unit product cost is the sum of all manufacturing costs per unit
	whether it is fixed or variable.
	Unit product cost under Absorption Costing:
	Direct materials	$13
	Direct labor	$16
	Variable Overhead per unit	$8
	Fixed overhead per unit	$23
	Product Cost per unit	$60
	Ending inventory   = Ending inventory units * Product cost per unit
	6,300 * $60
	$378,000
Ans. C	In variable costing method, the unit product cost is the sum of only variable
	manufacturing costs per unit
	Unit product cost under Variable Costing:
	Direct materials	$13
	Direct labor	$16
	Variable Overhead per unit	$8
	Total production cost per unit	$37
	Ending inventory   = Ending inventory units * Product cost per unit
	6,300 * $37
	$233,100
Ans. D	BLEDSOE CORP.
	Absorption Costing Income Statement
	PARTICULARS		Amount
	Sales   (8,200 * $120)		$984,000
	Less: Cost of goods sold
	Opening inventory	$0
	Add: Cost of goods manufactured (14,500*$60)	$870,000
	Cost of goods available for sale	$870,000
	Less: Ending inventory	-$378,000
	Cost of goods sold (total)		$492,000
	Gross margin		$492,000
	Selling & Administrative expenses:
	Fixed	$135,000
	Variable	$0
	Total Selling and administrative expenses		$135,000
	Net Income		$357,000
	*Cost of goods manufactured = Units produced * Absorption unit product cost
Ans. E	BLEDSOE CORP.
	Variable Costing Income Statement
	Particulars		Amount
	Sales   (8,200 * $120)		$984,000
	Less: Variable cost of goods sold:
	Opening inventory	$0
	Add: Variable cost of goods manufactured (14,500 * $37)	$536,500
	Variable cost of goods available for sale	$536,500
	Less: Ending inventory	-$233,100
	Variable cost of goods sold		$303,400
	Gross Contribution Margin		$680,600
	Less: Variable Selling and Administrative expenses		$0
	Contribution Margin		$680,600
	Less: Fixed expenses:
	Fixed manufacturing overhead (14,500 * $23)	$333,500
	Fixed selling and administrative expenses	$135,000	$468,500
	Net operating income		$212,100
	*Variable cost of goods manufactured = Units produced * Variable unit product cost