Question

Ogilvy Company manufactures and sells one product. The following information pertains to each of the company’s first three years of operations:

$ 28 Variable cost per unit: Direct materials Fixed costs per year: Direct labor Fixed manufacturing overhead Fixed selling and administrative expenses $1,512,000 $ 834,000 $ 278,000

The company does not incur any variable manufacturing overhead costs or variable selling and administrative expenses. During its first year of operations, Ogilvy produced 72,000 units and sold 72,000 units. During its second year of operations, it produced 72,000 units and sold 67,800 units. In its third year, Ogilvy produced 72,000 units and sold 76,200 units. The selling price of the company’s product is $65 per unit.

Required:

1. Assume the company uses super-variable costing:

a. Compute the unit product cost for Year 1, Year 2, and Year 3.

b. Prepare an income statement for Year 1, Year 2, and Year 3.

2. Assume the company uses a variable costing system that assigns $21 of direct labor cost to each unit produced:

a. Compute the unit product cost for Year 1, Year 2, and Year 3.

b. Prepare an income statement for Year 1, Year 2, and Year 3.

3. Reconcile the difference between the super-variable costing and variable costing net operating incomes in Years 1, 2, and 3.

Answer 1

Now lets have actual production sales & inuntours (2a) chit last production First year recond year third year First мал second ам 15120001512000 thith at beginning units produced third year 4,200 +2,000 Direct labour Diret Material 1512 000 2016 000 2016000 2016 OOD +2000 +2,000 834000 unite old 2,000 67,700 76,200 Manufacturing o4. Selling & admin 834000 271000 634000 246000 דג סס غه ملندا منهم selling Now price the at cost 4,200 $65/whit of direct matarials is $ 28/ unit : fired: labour Manu. Overheads selling & Adm. $ 1,512,000 $ 834,000 $ 278,000 : 어여 46400DO 4640 000 46400DO Unite poroduced $2,000 7, D-O 2000 Cost/ unit $ 64 444 364444 $64.444 (b) uts prepare an income statement under supe-variable corking - first year second your third year Şowy 6$ 657 init) $4,680,000 $ 4, 407,000 $4,453,000 less 113,600 Beginning iron direct malinialy $2016,000 1,898, 400 $2133 00 $ 2016, DOO $1, , 400 $ 3 133,600 ending in anbey - $ 17,600 206) 205 100 let prepare an income statement Fiut second year year $65/unit) $ 4,680,000 $4, 407,000 under variable conting third year $4,953,000 $ 3.733, 00 3,52*, OOD Tale $ 2, 133, 600 $ 3, +33,00 3,527,000 205,00 $3733, Cost of goods sold $2,016,000 Tepee - variable conty $ 2,664,000 $1,780, too $ 2,626,200 $ 2,917,400 $ 2,4 24,00 $ 2,624,000 $, 2,624, ODO monu- $ 3528 000 $ 3-322, 200 facturing costs 3,528, 000 ($ 28 + $ 21) Cost of goody man- $ 3,528,000 $3,322, 200 ufactuud 3,524, DOO Addi Beginning in - cost of good foolale $3,521, ODD $ 3,534,000 les cloring invent $ 205, top cost of goods sold $3,520,000 Contribution $ 1,152,000 $ 1,084,800 Less: fired factory a schody & 834,000 & 834,000 fred selling & ad $ 270,000 4 244,000 Jotal fired & non manufacturing vacabling $ 1,112,000 $1, 112,000 $-2200 $ 49000 $ 2200 - $ 195,400 $ 3733, 00 $ 1,219, 200 $ 234, ODD $ 211,000 $ 1,112,000 $ 107,200