Question

In the current year, TGIT Corp. produced 10,000 units and sold 8,000 of the units.
The company incurred the following costs:

Direct materials used		$120,000
Direct labour cost		68,000
Variable manufacturing overhead		40,000
Fixed manufacturing overhead		60,000
Fixed selling and admin. expense		45,000
Variable selling and admin. expense		36,000

There was no beginning finished goods inventory and no beginning or ending work-in-process inventory.

Use the information provided to answer the following questions:

aa) Without doing any calculations, would net income be higher for the year under absorption costing or under variable costing?

  AnswerVariable CostingAbsorption CostingNeitherUnknown

a) What is the product cost per unit?

    Under variable costing?

$ Answer per unit

     Under absorption costing?

$ Answer per unit

b) Would net income be higher for the year under absorption costing or under variable costing?

AnswerVariable CostingAbsorption CostingNeitherUnknown

     And by what amount?

$ Answer

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c) Would both of your answers in b) be the same if you were told that on January 1, TGIT had 1,000 units in finished goods inventory with the same cost per unit? (HINT - reconcil beginning and ending inventory with this new scenario)

AnswerYesNoUnknown

d) If you were told that TGIT produced 10,000 units and sold 9,000 units, what is the product cost per unit?

    Under variable costing?

$ Answer per unit

     Under absorption costing?

$ Answer per unit

e) Would net income be higher for the year under absorption costing or under variable costing?

AnswerVariable CostingAbsorption CostingNeitherUnknown

     And by what amount?

$ Answer

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f) If TGIT produced 8,000 units and sold 8,000 units, what is the product cost per unit? HINT: Don't forgot how costs behave when answering this question.

     Under variable costing?

$ Answer per unit

     Under absorption costing?

$ Answer per unit

g) Would net income be higher for the year under absorption costing or under variable costing?

AnswerVariable CostingAbsorption CostingNeitherUnknown

     And by what amount?

$ Answer

Answer 1

hope the table below will help to find the desired results about variable costing and absorption costing: -

Absorption costing leads to higher net income

Variable costing The company incurred the following costs: 2 Direct materials used 1 = B2/B9 |-вз в9 =B4/B9 -B5/B9 120000 68000 Sales(8000 SP) Variable COGS Beginning inventory Production cost -B10*B8 Direct labour cost 40000 4 Variable manufacturing overhead 5 Fixed manufacturing overhead 6 Fixed selling and admin expense 0 60000 =B9*B13 45000 36000 60 Cost of goods available for sale Ending inventory Gross profit Variable marketing and admin. Expenses Contribution Less: Fixed cost Manufacturing overhead Marketing and admin. Net Income =F4+F5 =B11*B13-F6-F7 -B7/B10 7 Variable selling and admin. expense 8 Selling price(assumed) -G2-G7 -C7*B10 - G8-G9 10000 8000 -B9-B10 (B2+B3+B4+B5) B9 (B2+B3+B4)B9 9 Produced Units 10 Sold Units 11 Ending inventory 12 Product cost as per absorption costing -B5 -F12+ F13 13 Product cost as per Variable costing =B6 =G10-G13 14 Absorption costing 15 16 Sales(8000 SP) 17 Cost of goods sold: 18 Beginning inventory 19 Production cost 20 cost of goods available for sale 21 Less: ending inventory -B10*B8 0 -B9*B12 -B18+B19 =B20-B21 Еc16-C21 =B11*B12 22 Gross Profit 23 Marketing and admin. Expenses 24 Variable =B10*C7 B6 -B24+B25 -C22-C25 25 Fixed 26 Net income

В C E F G Variable costing The company incurred the following costs: 2 Direct materials used 1 $ 120,000.00 S S 68,000.00 $ S 40,000.00 S S 60,000.00 $ S 45,000.00 S 36,000.00 S Sales(8000 SP) Variable COGS Beginning inventory Production cost $480,000.00 12.00 Direct labour cost 6.80 4 Variable manufacturing overhead 5 Fixed manufacturing overhead 6 Fixed selling and admin. expense 7Variable selling and admin. expense 8 Selling price(assumed) 4.00 0 $ 228,000.00 6.00 Cost of goods available for sale Ending inventory Gross profit Variable marketing and admin. Expenses Contribution Less: Fixed cost Manufacturing overhead Marketing and admin Net Income $228,000.00 S 45,600.00 $ 182,400.00 4.50 $297,600.00 60 S 36,000.00 9 Produced Units 10000 10 Sold Units $261,600.00 8000 11 Ending inventory 12 Product cost as per absorption costing 2000 S 60,000.00 S 45,000.00$ 105,000.00 S 28.80 13 Product cost as per Variable costing 22.80 $156,600.00 14 Absorption costing 15 16 Sales(8000 SP) $480,000.00 17 Cost of goods sold: 18 Beginning inventory 19 Production cost 0 $288,000.00 $288,000.00 S 57,600.00 $230.400.00 20 cost of goods available for sale 21 Less: ending inventory 22 Gross Profit $249,600.00 23 Marketing and admin. Expenses S 36,000.00 S 45,000.00 S 81,000.00 24 Variable 25 Fixed 26 Net income S 168,600.00

C D F G Variable costing 1 The company incurred the following costs: $120,000.00 S S 68,000.00 S S 40,000.00 S S 60,000.00 S S 45,000.00 S 36,000.00 S 12.00 Sales(8000*SP) Variable COGS: Beginning inventory Production cost $540,000.00 Direct materials used 2 Direct labour cost 6.80 3 4 Variable manufacturing overhead 5 Fixed manufacturing overhead 6 Fixed selling and admin. expense 7 Variable selling and admin. expense 4.00 0 $228,000.00 6.00 Cost of goods available for sale $228,000.00 Ending inventory Gross profit Variable marketing and admin. Expenses Contribution Less: Fixed cost Manufacturing overhead Marketing and admin. Net Income S 22,800.00 $ 205,200.00 4.00 8 Selling price(assumed) 60 $334,800.00 S 36,000.00 9 Produced Units 10000 9000 10 Sold Units $298,800.00 11 Ending inventory 12 Product cost as per absorption costing 1000 S 60,000.00 S 45,000.00 $ 105,000.00 28.80 13 Product cost as per Variable costing 22.80 $193,800.00 14 Absorption costing 15 16 Sales(8000*SP) $540,000.00 17 Cost of goods sold: 18 Beginning inventory 19 Production cost $288,000.00 $ 288,000.00 28,800.00 S 259,200.00 20 cost of goods available for sale 21 Less: ending inventory 22 Gross Profit $280,800.00 23 Marketing and admin. Expenses S 36,000.00 S 45,000.00 S 81,000.00 24 Variable 25 Fixed 26 Net income $199,800.00

В C E F G Variable costing The company incurred the following costs: 1 $ 120,000.00 S S 68,000.00S S 40,000.00 $ S 60,000.00 $ S 45,000.00 S 36,000.00 S Sales(8000*SP) Variable COGS Beginning inventory Production cost $480,000.00 Direct materials used 15.00 2 Direct labour cost 8.50 4 Variable manufacturing overhead 5 Fixed manufacturing overhead 6 Fixed selling and admin. expense 7 Variable selling and admin. expense 5.00 0 S 228,000.00 7.50 Cost of goods available for sale Ending inventory Gross profit Variable marketing and admin. Expenses Contribution Less: Fixed cost Manufacturing overhead Marketing and admin Net Income $228,000.00 $ 228,000.00 $252,000.00 S 36,000.00 $ 4.50 8 Selling price(assumed) 9 Produced Units 60 8000 8000 10 Sold Units $216,000.00 11 Ending inventory 0 S 60,000.00 S 45,000.00 12 Product cost as per absorption costing 36.00 $ 105,000.00 13 Product cost as per Variable costing 28.50 $111,000.00 14 Absorption costing 15 16 Sales(8000 SP) $480,000.00 17 Cost of goods sold: 18 Beginning inventory 19 Production cost 0 $ 288,000.00 $288,000.00 20 cost of goods available for sale 21 Less: ending inventory $ 288,000.00 S 192,000.00 22 Gross Profit 23 Marketing and admin. Expenses S 36,000.00 S 45,000.00 S 81,000.00 24 Variable 25 Fixed 26 Net income $111,000.00