Question

EXERCISE 7 Limonade Italy, the Italian branch of a multinational company operating in the sports drink industry, inours the following costs for its powdered sports beverage mix in march 2016: Direct Materials costs Direct labor costs Variable manufacturing overhead costs Fixed manufacturing overhead costs Sales Commissions Average selling prices Cases of powdered mix producible Cases of powdered mix produced Cases of powdered mix sold $ 80,000 $36,000 $ 20,000 $ 54,000 $ 3 per case $ 28 per case 12,000 cases 10,000 cases 8,000 cases There is no beginning inventory, so Limonade has 2,000 cases of powered mix in ending Finished God Inventory Requirements: 1. What is Limonade's product cost per case under absorption costing and variable costing? 2. Prepare income statements for Limonade using absorption costing and variable costing. 3. Determine the company's break-even price. EXERCISE 8

Answer 1

Req. 1

Product cost per case under absorption costing
Direct materials ($80,000/10,000)	$8
Direct labor ($36,000/10,000)	$3.60
variable manufacturing ($20,000/10,000)	$2
Fixed manufacturing overhead ($54,000/10,000)	$5.40
Total product cost per case	$19
Product cost per case under Variable costing
Direct materials ($80,000/10,000)	$8
Direct labor ($36,000/10,000)	$3.60
variable manufacturing ($20,000/10,000)	$2
Total product cost per case	$14

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Req. 2

Limonade company
Income statement for March, 2016 (Absorption costing)
Sales (8,000 × $28)	$224,000
Less: COGS (8,000 × $19)	($152,000)
Gross profit	$72,000
Less: Sales commission (8,000 × $3)	($24,000)
Net income	$48,000
Limonade company
Income statement for March, 2016 (Variable costing)
Sales (8,000 × $28)	$224,000
Less: COGS (8,000 × $14)	($112,000)
Less: Sales commission (8,000 × $3)	($24,000)
Contribution margin	$88,000
Less: Fixed manufacturing overhead cost	($54,000)
Net income	$34,000