Question

Problem 5-15 The following information relates to Ridgewood Manufacturing for fiscal 2017, the company’s first year of operation: Selling price per unit $ 149 Direct material per unit $ 74 Direct labor per unit $ 32 Variable manufacturing overhead per unit $ 5 Variable selling cost per dollar of sales $ 0.04 Annual fixed manufacturing overhead $ 2,440,000 Annual fixed selling expense $ 1,625,000 Annual fixed administrative expense $ 842,500 Units produced 244,000 Units sold 209,200

Prepare an income statement using full costing. (Enter loss using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Ridgewood Manufacturing Income statement using full costing December 31, 2017For the Month Ended December 31, 2017For the Year Ended December 31, 2017 Cost of goods soldFixed costsGross marginContribution marginManufacturingNet incomeSelling expenseSalesAdministrative expense $ LessAdd : Selling expenseSalesFixed costsManufacturingCost of goods soldGross marginAdministrative expenseNet incomeContribution margin Administrative expenseCost of goods soldContribution marginGross marginNet incomeManufacturingFixed costsSelling expenseSales AddLess : SalesNet incomeAdministrative expenseCost of goods soldContribution marginManufacturingGross marginSelling expenseFixed costs Contribution marginNet incomeManufacturingFixed costsAdministrative expenseSalesCost of goods soldGross marginSelling expense Administrative expenseGross marginNet incomeSalesFixed costsCost of goods soldManufacturingSelling expenseContribution margin $ LINK TO TEXT LINK TO TEXT

Prepare an income statement using variable costing. (Enter loss using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Ridgewood Manufacturing Income statement using variable costing December 31, 2017For the Year Month December 31, 2017For the Year Ended December 31, 2017 Fixed costsVariable cost of goods soldAdministrative expenseNet incomeVariable selling expenseManufacturingGross marginFixed selling expenseSalesContribution margin $ AddLess Gross marginVariable cost of goods soldAdministrative expenseFixed costsManufacturingFixed selling expenseContribution marginNet incomeVariable selling expenseSales Variable selling expenseGross marginVariable cost of goods soldManufacturingSalesFixed selling expenseAdministrative expenseFixed costsContribution marginNet income Net incomeContribution marginGross marginVariable selling expenseManufacturingSalesVariable cost of goods soldFixed selling expenseFixed costsAdministrative expense AddLess : Fixed selling expenseManufacturingAdministrative expenseFixed costsNet incomeContribution marginVariable selling expenseVariable cost of goods soldGross marginSales     Fixed selling expense    Manufacturing    Variable cost of goods sold    Contribution margin    Net income    Fixed costs    Administrative expense    Variable selling expense    Sales    Gross margin         Fixed selling expense    Administrative expense    Net income    Fixed costs    Variable selling expense    Gross margin    Sales    Manufacturing    Variable cost of goods sold    Contribution margin         Administrative expense    Manufacturing    Net income    Variable cost of goods sold    Contribution margin    Variable selling expense    Fixed costs    Gross margin    Fixed selling expense    Sales     Variable selling expenseFixed selling expenseGross marginContribution marginAdministrative expenseNet incomeSalesManufacturingVariable cost of goods soldFixed costs $ LINK TO TEXT LINK TO TEXT

Calculate the amount of fixed manufacturing overhead that will be included in ending inventory under full costing and reconcile it to the difference between income computed under variable and full costing. (Enter loss using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Fixed manufacturing overhead included in ending inventory $ Net income under full costing $ Net income under variable costing Difference $

Answer 1

1 Less la Income Statement under Full costing For the yer ended December 31, 2017 Sales $ Cost of Goods Sold $ Gross Margin Selling Expense Administrative expense Net Operating Income $ 31,170,800 25,313,200 5,857,600 1,633,368 842,500 3,381,732 Less . .. Sales = Units Sold x Selling Price per unit = 209200 x 149 = 31170800 COGS = Units Sold x Unit Product Cost = 209200 x 121 = 25313200 Selling & adm = Fixed + Variable cost = 1625000 + (209200 x 0.04) = 1633368 2 Income Statement under Variable Costing $ 31,170,800 less $ $ 23,221,200 8,368 $ $ 23,229,568 7,941,232 Sales Variable Expense: Variable cost of goods sold Variable Selling expense Contribution Margin Fixed Expense : Fixed Manufacturing Overhead Fixed Selling expense Fixed administrative expense Net Operating Income less $ $ $ 2,440,000 1,625,000 842,500 $ $ 4,907,500 3,033,732 Variable COGS = Units Sold x Unit Product Cost =209200 x 111 = 23221200 Variable selling exp = Units Sold x variable selling cost per unit = 209200 x 0.04 = 8368 In absorption costing Fixed overhead per unit is taken into consideration and in variable costing total fixed overhead is considered. So there is difference in income of both the methods. Reconciliation of variable & absorption costing Fixed Manufacturing Overhead included in ending inventory $ 348,000 (34800 x $10 ) Net income under full costing Less Net operating under Variable costing Difference $ $ $ 3,381,732 3,033,732 348,000 Ending Inventory = 244000 - 209200 = 34800 units