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Violins-by - Lucy produces student-grade violins for beginning violin students. The company produced 2,400 violins in its first month of operations. At month-end, 700 finished violins remained unsold. There was no inventory in wo in process. Violins were sold for $125.00 each. Total costs from the month are as follows: (Click on the icon to view the data.) The company prepares traditional (absorption costing) income statements for its bankers. Lucy would also like to prepare contribution margin income statements for his own management use. Requirements 0 Data Table - X 0 Requirements - X Direct materials used........... .........$ Direct labour... Variable manufacturing overhead............ Fixed manufacturing overhead Variable selling and administrative expenses..... Fixed selling and administrative expenses 133,400 40,000 33,000 52,800 9,000 13,300 Compute the following amounts that would be shown on these income statements: Requirements 1. Gross profit 2. Contribution margin 3. Total expenses shown below the gross profit line 4. Total expenses shown below the contribution margin line 5. Dollar value of ending inventory under absorption costing 6. Dollar value of ending inventory under variable costing Which income statement has a higher operating income? By how much? Explain. Print Done Print Done click Check Answer

Answer 1

Solution Given , compan in its month first " Company produces 2400 violins of its operators. 700 finished violins were unsold and there is no Inventory in coork in process. LOOOD Selling price of violins (per unit) is $125. Additional information Direct materials used $ 133400 Direct labour variable manufacturing overhead (6.4) fixed manufacturing overhead (or) variable selling and Admin, expenses fized selling and Admin, expenses. 33000 52800 9000 13300 (1) $ 212500 Gross profit sales. (1700 x 125) [WN 1] Less: cost of goods sold. (1 700 x+108 ) [WN 2] (183600) Gross profit $28900 (2) Contribution algin sales $ 212.500 Less" valiable wsts [WN 3] (155200) Contribution Margin $ 57300

3. Total expenses shown below Cross profit line: $ 9000 variable t) Fixed selling Selling and and Administrative Administrative shootin expenses expenses. ennenses. & 13300 Total expenses shown below Cross profit line $22300 4. total expenses shown below the contribution Margin line $ 52800 fixed manufacturing our head H) Fined selling and administrative expenses Total expenses below the contribution Margin line $13300 $ 66100 5. The dollar value of ending inventory under absorption costing is : Total cost under absorption costing refer $ 259200 working note (2) Total cost pee vidlin $ 108 then, 700 violins. closing inventory having The dollar costing value of ending is. 700 (W) x inventory $108. under absorption e., & 75600.

6. ending Variable under inventory under the dollar value of costing I : Direct material cost Direct labor variable manufacturing Total variable cost $ 139400 $ 120000 $ 33000 over heads. for 2400 units, $ 20 6400 then, of under variable The dollar value costing for 700 ending inventory units (violins) is. $ 206400 X 700 (v) ise, $60200 2 400 V The absorption income statement will have a higher operating income by 1495600 - #60200) ¢15400. under absorpting costing, more tixed manufacturing oncehead costs are trapped on the balancesheet. under variable costing these costs are expensed as a part of cost of goods sold in the current period.

klorking lotes (w.N) Computation of units sold. 2400 (700) units produced Less: closing inventory sold units. Note : Assumed there 1700 was no opetning inventory in question. Nothing is given (2) Computing cost of goods sold Direct $133400 Hoooo 33000 Direct variable fixed cost materials used . labour manufacturing 0.4 manufacturing oH of goods sold. 52800 259200 cost $259200 of goods pel hotin sold is Total cost number of units $2400 produced = $ 108 pee Violin

(3) Variable costs $ 133400 Direct materials used L0000 Direct Labor 33000 Variable manufacturing overwad. $ 206uoo yohal variabu wst for 2400 violongs. then, Variable cost for 1700 violins is. $ 206 400 -X 1700 (2) 2400 (V) =>$146200. 9000 (4) Variable selling & Admin, expenses $ 155 200