Question

Question 1 (22 marks) Imperial Jewelers Limited manufactures and sells a gold bracelet for $2,800. The company's accounting system shows the following information for this bracelet: 45,000 38,000 7,000 Units in beginning inventory Units produced Units sold Units in ending inventory Variable costs per unit: Direct labor Direct materials Variable manufacturing overhead Variable selling and administrative Fixed costs: Fixed manufacturing overhead Fixed selling and administrative 460 840 3,680,000 1,200,000 Required: 1. Assume that the company uses variable costing. Compute the unit product cost for one bracelet and the cost of ending inventory. (10 marks) 2. When the number of units produced is higher than the number of units sold, what will be the effect on net operating income under variable costing compared to absorption costing? Explain briefly in one sentence only (less than 20 words). (8 marks) 3. How will the selling and administrative expenses be treated? Explain briefly in one sentence only (less than 20 words). (4 marks)

Answer 1

1)Unit product cost= Direct material+ direct labor+ Variable MOH +Variable selling and admin

=460+840+60=$1,360

Cost of ending inventory= Units in ending inventory*product cost

=7000*1360=$9,520,000

2)In the absorption costing the net operating income will be higher than the variable costing because of change in ending inventory

3)Selling and administrative expenses both fixed and variable taken as other costs in variable costing