Question

In 2019, Barry Grey Inc. sold 42,000 units at a selling price of $44 per unit. The company manufactured 70,000 units. Variable manufacturing costs were $22 per unit manufactured. Fixed manufacturing costs amounted to $334,000. Variable marketing costs were $9 per unit sold, and the budgeted and actual fixed marketing costs were $30,000. Other fixed operating expenses amounted to $22,000. There was no beginning inventory.

Round all answers to the nearest whole number.

a) Calculate the company's 2019 operating income using absorption costing.

Revenues
Cost of Goods Sold:
Beginning Inventory
Cost of Goods Manufactured
Less: Ending Inventory
Cost of Goods Sold
Gross Margin
Operating Expenses:
Marketing Costs
Other Fixed Operating Expenses
Income from Operations

b) Calculate the company's 2019 operating income using variable costing.

Revenues
Variable Cost of Goods Sold
Beginning Inventory
Cost of Goods Manufactured
Less: Ending Inventory
Variable Cost of Goods Sold
Variable Marketing Costs
Contributed Margin
Operating Expenses:
Fixed Manufacturing Overhead Costs
Fixed Marketing Costs
Other Fixed Operating Expenses
Income from Operations

Answer 1

Answer

• Requirement 1

Revenues		$1,848,000
Cost of Goods Sold:
Beginning Inventory	$0
Cost of Goods Manufactured	$1,874,000
Less: Ending Inventory	$749,600
Cost of Goods Sold		$1,124,400
Gross Margin		$723,600
Operating Expenses:
Marketing Costs	$408,000
Other Fixed Operating Expenses	$22,000	$430,000
Income from Operations		$293,600

--Workings

Revenues		=42000*44
Cost of Goods Sold:
Beginning Inventory	0
Cost of Goods Manufactured	=(70000*22)+334000
Less: Ending Inventory	=1874000-1124400
Cost of Goods Sold		=+(42000*22)+(42000*334000/70000)
Gross Margin		=1848000-1124400
Operating Expenses:
Marketing Costs	=+(42000*9)+30000
Other Fixed Operating Expenses	22000	=408000+22000
Income from Operations		=723600-430000

• Requirement 2: Variable costing

.
Revenues		$1,848,000
Variable Cost of Goods Sold
Beginning Inventory	$0
Cost of Goods Manufactured	$1,540,000
Less: Ending Inventory	$616,000
Variable Cost of Goods Sold	$924,000
Variable Marketing Costs	$378,000	$1,302,000
Contributed Margin		$546,000
Operating Expenses:
Fixed Manufacturing Overhead Costs	$334,000
Fixed Marketing Costs	$30,000
Other Fixed Operating Expenses	$22,000	$386,000
Income from Operations		$160,000

--Working

.
Revenues		=42000*44
Variable Cost of Goods Sold
Beginning Inventory	0
Cost of Goods Manufactured	=70000*22
Less: Ending Inventory	=1540000-924000
Variable Cost of Goods Sold	=42000*22
Variable Marketing Costs	=42000*9	=924000+378000
Contributed Margin		=1848000-1302000
Operating Expenses:
Fixed Manufacturing Overhead Costs	334000
Fixed Marketing Costs	30000
Other Fixed Operating Expenses	22000	=334000+30000+22000
Income from Operations		=546000-386000