Question

During its first year of operations, Snobegon, Inc. (located in Lake Snobegon, Minnesota), produced 40,700 plastic snow scoops. Snow scoops are oversized shovel-type scoops that are used to push snow away. Unit sales were 38,700 scoops. Fixed overhead was applied at $0.70 per unit produced. Fixed overhead was underapplied by $2,500. This fixed overhead variance was closed to Cost of Goods Sold. There was no variable overhead variance. The results of the year’s operations are as follows (on an absorption-costing basis):

Sales (38,700 units @ $20) : $774,000

Less: Cost of Goods Sold : $549,660

Gross Margin: $224,340

Less: Selling and Administrative Expenses (All Fixed): $184,500

Operating Income: $39,840

1) Calculate the cost of the firm’s ending inventory under absorption costing. Round unit cost to five decimal places. Round your final answer to the nearest dollar.

2) What is the cost of the ending inventory under variable costing? Round unit cost to five decimal places. Round your final answer to the nearest dollar?

3) Prepare a variable-costing income statement. Round the unit cost to five decimal places, when required. Round your final answers to the nearest dollar. Use the rounded values in subsequent computations.

Sales: _____?_____

Less: Variable Cost of Goods Sold: _____?_____

Contribution Margin: _____?_____

Less: Fixed Overhead: _____?____

Less: Fixed Selling and Administration Expenses: ______?______

Operating Income: _____?_____

4) What is the difference between the two income figures?

Answer 1

) Cast of ending inventery_undeu absoaption couting GOGS less: fixed overxhead under applied cogcubefoke_adjusting undeiapplied.oveshead $549,660 2,500 547,160 3.8,700 $14.13850 28,212 Unit sld Pes unit cost fost feading inertery (2000 unile) 2) Vaxiable losding १ wwt (okt c been 0 Less: Fixed overbead'per unit Unit lost undek variable costing Cost gending ioventory (2000 unils) $14.13850 40.7 $'13 .43850 $26,877 3) Sales Less: Variable CoGs (38,700 x 13.43850) Contributim Less: fixed Oves heado (R10,700* 0.70)+ 2,50) Less: fixed $774,000 $520,070 253 १30 $30,990 $184,500 38440 Margin and Administrative Expentes Income selling Opeiating 4) difference between two income figuse: Operating Inome as per absosplim costing Operating! tigussi- $39,840 $38,440 1,400 Income as per variable coting Aiyerece