Question

Rainbow Concrete Corporation has provided the following data for its two most recent years of operation: Selling price per unit $88 Manufacturing costs: Variable manufacturing cost per unit produced: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead per year Selling and administrative expenses: Variable selling and administrative expense per unit sold Fixed selling and administrative expense per year 360,000 74,000 Year 1 Units in beginning inventory Units produced during the year Units sold during the year Units in ending inventory 15,000 10,000 5.000 Year 2 5,000 12,000 15,000 2,000 Complete (a) through € (a). Assume the company uses absorption costing. Compute the unit product cost in each year. Year 1 Year 2 (b). Assume the company uses absorption costing. Prepare an income statement for each year. Year 1 Year 2 Sales

I have finished parts A-D and just need help with part E.

Answer 1

Answer

Answer

Part E requires the answers from Part A to Part D, so no issue I will solve them but please remember from next time as u can see that for reconciliation, we need the figures to reconcile and they are available in Part A to D.

1.

Unit Cost (Absorption Costing)
	Year 1	Year 2
Direct Material	18	18
Direct Labor	12	12
Variable Manufacturing Overhead	6	6
Fixed Manufacturing per unit	24.0 ($360,000 / 15,000 Units)	30.0 ($360,000 / 12,000 Units)
Per unit Cost	60.0	66.0
Income Statement
	Year 1	Year 2
	Detail	Net	Detail	Net
Sales (@ 88 per unit)		880,000		1,320,000
Less: Cost of Goods Sold
Opening Inventory	-		300,000
Add: Cost of goods Manufactured	900,000		792,000
Less: Closing Inventory	(300,000)	600,000	(132,000)	960,000
Gross Profit		280,000		360,000
Less: Selling and Administrative Cost
Variable Selling and Adm. Expenses	70,000		105,000
Fixed Selling and Adm. Expenses	74,000	144,000	74,000	179,000
Net Operating Income		136,000		181,000

2.

Variable Costing

Unit (Variable Costing)
Direct Material	18
Direct Labor	12
Variable Manufacturing Overhead	6
Per unit Cost	36
Income Statement (Variable Costing)
	Year 1	Year 2
	Detail	Net	Detail	Net
Sales (@ 88 per unit)		880,000		1,320,000
Less: Cost of Goods Sold
Opening Inventory	-		180,000
Add: Cost of goods Manufactured	540,000		432,000
Less: Closing Inventory	(180,000)	360,000	(72,000)	540,000
Gross Contribution Margin		520,000		780,000
Less: Variable Selling and Adm. Expenses		70,000		105,000
Contribution Margin		450,000		675,000
Less: Fixed Cost
Fixed Manufacturing Cost	360,000		360,000
Fixed Selling and Adm. Expenses	74,000	434,000	74,000	434,000
Net Operating Income		16,000		241,000

3.

	Year 1	Year 2
Profit as per Variable Costing	16,000.00	241,000.00
Add (Less)
Due to Fixed Overhead cost included in Closing Inventory (5,000 Units * 24 Per unit (Calculated in Absorption Costing calculation))	120,000.00
Due to Fixed Overhead cost included in Opening Inventory (5,000 Units * 24 Per unit (Calculated in Absorption Costing calculation))		(120,000.00)
Due to Fixed Overhead cost included in Closing Inventory (2,000 Units * 30 Per unit (Calculated in Absorption Costing calculation))		60,000.00
Profit as per Absorption Costing	136,000.00	181,000.00

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