Question

5) MSU manufactures and sells toy gyroscopes. The following data is related to sales and production of the toy gyroscopes for last year. $8.00 $ 1.83 Selling price per unit Variable manufacturing costs per unit Variable selling and administrative expenses per unit Fixed manufacturing overhead (in total) Fixed selling and administrative expenses (in total) Units produced during the year Units sold during the year $ 75,000 $ 80,000 500,000 150,000 Using variable costing, what is the operating income for last year? a. $1,200,000 b. $103,000 c. $413,000 d. $258,000 6) With respect to Sample, LLC's total fixed costs, which of the following statements is truet a. They will remain the same as production levels change within the relevant range. b. They will increase as production decreases within the relevant range. c. They will decrease as production increases within the relevant range. d. They will decrease as production decreases within the relevant range. 7) MSU manufactures widgets. The following data is related to sales and production of the widgets for last year.

Answer 1

Solution

5. MSU

1. Determination of the operating income for the year using the variable costing:

Sales	$1,200,000	($8 x 150,000)
Less: Variable costs
manufacturing costs	$274,500	($1.83 x 150,000)
selling and administrative costs	$667,500	($4.45 x 150,000)
total variable costs	$942,000	($6.28 x 150,000)
Contribution	$258,000	($1.72 x 150,000)
Fixed Costs:
manufacturing costs	$75,000
selling and administrative costs	$80,000
total fixed costs	$155,000
Net operating income	$103,000

The correct option is b. $103,000

6. With respect to Sample LLC’s total fixed costs, the statement that holds true is …

Option a. They will remain the same as production levels change within the relevant range.

Explanation:

Fixed costs are costs that do not change with changes in levels of production. These costs remains the same regardless of changes in levels of production.

7. determination of operating income using absorption costing:

Net operating income, using absorption costing = $39,300

Computations:

Sales	$143,000	($130 x 1,100)
Less: cost of goods sold
Cost of goods produced	$123,000
Less: ending inventory	$32,800	($82 x 400 units)
Cost of goods sold	$90,200	($82 xx 1,100 units)
Gross Margin	$52,800
selling and administrative costs
Variable costs	$5,500	($5 x 1,100)
Fixed costs	$8,000
Total selling and administrative costs	$13,500
Net operating income	$39,300

Unit cost of goods produced:

Cost of goods sold:
Variable	$62
Fixed	$20
Total	$82

Fixed manufacturing cost per unit = $30,000/1,500 units produced = $20 per unit

Units in ending inventory = 1,500 – 1,100 = 400 units

8. determination of the cost of goods sold percent:

Cost of goods sold percent = (cost of goods sold/sales) x 100

Cost of goods sold = $275,000

Sales = $500,000

Cost of goods sold percent = 275,000/500,000 = 55%