Question

Required information [The following information applies to the questions displayed below) Oak Mart, a producer of solid oak tables, reports the following data from its second year of business. 6 330 per unit 100,000 units 103,500 units 3,500 units Sales price per unit Units produced this year Units sold this year Units in beginning-year inventory Beginning inventory costs Variable (3,500 units * $140) Fixed (3, 500 units x $70) Total Manufacturing costs this year Direct materials Direct labor Overhead costs this year Variable overhead Fixed overhead Selling and administrative costs this year Variable 6 490,000 245,000 6 735,000 6 44 per unit 62 per unit $3,600,000 $7,200,000 Fixed 61,350,000 4,000,000

Answer 1

OAK MART COMPANY
Variable Costing Income Statement
Sales                                                  [Units sold x Sales price per unit = 103,500 x $330]		$34,155,000
Less: Variable Costs
Beginning inventory
Variable costs	$490,000
Manufacturing costs this year
Direct materials                   [Units produced x Material cost per unit = 100,000 x $44]	$4,400,000
Direct labor                         [Units produced x Labor cost per unit = 100,000 x $62]	$6,200,000
Variable overhead costs	$3,600,000
Total variable costs available   [$490,000 + $4,400,000 + $6,200,000 + $3,600,000]	$14,690,000
Less: Ending finished goods inventory	$0
Variable cost of goods sold       [$14,690,000 - $0]	$14,690,000
Variable selling and administrative Expenses	$1,350,000
Total variable costs                [$14,690,000 + $1,350,000]		$16,040,000
Contribution Margin             [Sales - Total variable costs = $34,155,000 - $16,040,000]		$18,115,000
Less: Fixed expenses
Fixed selling and administrative Expenses	$4,000,000
Fixed overhead costs	$7,200,000
Total fixed expenses              [$4,000,000 + $7,200,000]		$11,200,000
Net Income (Loss)                [$18,115,000 - $11,200,000]		$6,915,000

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OAK MART COMPANY
Absorption Costing Income Statement
Sales                                                               [Units sold x Sales price per unit = 103,500 x $320]		$34,155,000
Less: Cost of Goods Sold
Beginning inventory                           [Variable + Fixed = $490,000 + $245,000]	$735,000
Manufacturing costs this year
Direct materials                   [Units produced x Material cost per unit = 100,000 x $44]	$4,400,000
Direct labor                         [Units produced x Labor cost per unit = 100,000 x $62]	$6,200,000
Variable overhead costs	$3,600,000
Fixed overhead costs	$7,200,000
Less: Ending inventory	$0
Cost of goods sold                [$735,000 + $4,400,000 + $6,200,000 + $3,600,000 + $7,200,000 - $0]		$22,135,000
Gross Margin                      [Sales - Cost of Goods Sold = $34,155,000 - $22,135,000]		$12,020,000
Selling, general and administrative Expenses
Variable selling and administrative Expenses	$1,350,000
Fixed selling and administrative Expenses	$4,000,000
Total Selling, general and administrative Expenses       [$1,350,000 + $4,000,000]		$5,350,000
Net Income (Loss)                                                        [$12,020,000 - $5,350,000]		$6,670,000
Net Income under variable costing is higher than net income under absorption costing by          [$6,915,000 - $6,670,000]		$245,000
Number of units added to (subtracted to) inventory                                                                      [Beginning inventory]		3,500
Fixed overhead cost per unit                  [Fixed overhead in beginning inventory / Beginning inventory = $245,000 / 3,500 units]		$70
Fixed costs added to inventory               [3,500 units x $70]		$245,000