Question

THE FOLLOWING APPLIES TO THE NEXT 2 QUESTIONS Cornell Products has the following cost information available for 2018 its first year of business based on normal capacity of 6,000 units: Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative costs Fixed manufacturing overhead ($30,000/6,000 units = $5.00 per unit) Fixed selling and administrative costs $1.00 per unit $2.00 per unit $1.50 per unit $ .50 per unit $5.00 per unit $25,000 During 2018, Cornell produced 6,000 units out of which 5,400 units were sold for $20 each. I/1/18 beginning inventory was zero units and the 12/31/18 ending inventory was 600 units. 31. What is net income under variable costing? a. $35,000 b. $29,000 c. $26,000 d. $23,000

Answer 1

Solution Question#31 Step-1: Computation of product cost per unit under variable costing Direct materials per unit Direct labor per unit $1.00 $2.00 Variable manufacturing overhead per unit Product cost per unit $1.50 $4.50 Step-2: Income Statement under variable costing Income Statement Sales (5,400 x $20) $108,000 Variable expenses Cost of Goods Sold (5,400 x $4.50) $24,300 Selling and administrative costs (5,400 x $0.50) Total Variable expenses $2,700 $27,000 $81,000 Contribution Margin Fixed expenses Fixed manufacturing Overheads $30,000 Fixed selling and administrative costs $25,000 Total Fixed expenses $55,000 Net income $26,000 Net income under variable costing is $26,000. The correct option is, c. $26,000 Question#33 Reason behind the key argument in favor of variable costing: A. Fixed manufacturing overhead costs occur regardless of the level of production and are a function of time. Question #34 Reason behind the key argument in favor of absorption costing C. Fixed manufacturing overhead (like direct materials, direct labor, and variable manufacturing overhead) is necessary in order to make a product. That is, you cannot make a product without direct materials, direct labor, variable manufacturing overhead, and fixed manufacturing overhead