Question

Exercise 17.30 Asian Iron began last year with no inventories. During the year, 10,500 units were produced, of which 9,400 were sold. Data concerning last year's operations appear here (in New Taiwanese dollars, NT$): Revenue Variable direct materials costs Variable direct labour costs Variable manufacturing overhead Variable selling Fixed manufacturing overhead Fixed selling and administrative costs NT$ 32,900 2,300 3,300 2,800 940 8,250 14,560 Variable manufacturing costs reflect the variable cost to produce the number of units manufactured. However, variable selling costs are not incurred until the units are sold, so they reflect the cost for the number of units sold. Asian Iron allocates actual manufacturing overhead costs to inventory, based on actual units produced.

Answer 1

Ending Inventory Variable Costing |Absorption Costing $ Throughput costing $ 1 880 1,744 2 3 241

Ending inventory under variable costing 1) $8,400 Total Manufacturing cost Production Units 10500 $0.8000 Manufacturing cost per Unit Ending Inventory = 1100* $0.8000 =$ 880 Total Manufacturing cost Variable Direct materials costs $2,300 $3,300 $2,800 Variable Direct labour costs Variable Manufacturing Overhead Total Manufacturing cost $8,400 Ending Inventory units 10500 9400 1100 Under Variable Costing system, Fixed manufacturing overhead is treated as period cost. Hence it is not part of the production cost.

Ending inventory under absorption costing 2) $16,650 Total Manufacturing cost Production Units 10500 $ 1.5857 Manufacturing cost per Unit Ending Inventory = 1100 $1.5857 = $ 1,744 Total Manufacturing cost Variable Direct materials costs Variable Direct labour costs Variable Manufacturing Overhead Fixed Manufacturing overhead Total Manufacturing cost $ 2,300 $3,300 $ 2,800 $8,250 $16,650 Ending Inventory units 10500- 9400= 1100

trea Ending Inventory under Throughput Costing 3) Ending Inventory units 10500-9400 1100 Direct material cost per unit $ 2300/10500 $ 0.2190 = 1100* $ 02190 = Ending Inventory 241 Under Throughput costing, only Direct material cost is treated as product cost and direct labour cost and other overhead costs are treated as period costs

Operating Income 8,676 Operating Income under Variable Costing Revenue Less Variable Costs Varaible Cost of Goods Sold Variable Selling expenses Contribution Margin Less: Total Fixed Costs Fixed manufacturing overhead Fixed selling and administrative costs Operating Income $ 42,385 (9,688) (1,211) $(10,899) $ $31,486 (8,250) $ (14,560) $(22,810) $ 8,676 Working Note Variable Costs for 12110 Units $ 8,400 Total variable manufacturing cost for 10500 units Total variable manufacturing cost for 12110 units $ 8400 /10500 *12110 $ 9688 $ 1,211 Total Variable selling expenses $940/9400 *12110 = Revenue for 12110 Units $ 32900 /9400*12110 = $42385