Question

The following questions are based on Tustin Corporation, which produces a single product selling for $12 per unit. One hundred thousand units were produced, and 80,000 units were sold during year 1; all ending inventory was in finished goods inventory. Fixed Costs Variable Costs Direct materials $2.40 per unit produced Direct labor.... 1.60 per unit produced Factory overhead - $240,000 .80 per unit produced Marketing and administrative 128,000 .80 per unit sold Tustin had no inventory at the beginning of the year. a. In presenting inventory on the balance sheet at December 31, the unit cost underfull-absorption costing is: b. In presenting inventory on a variable costing balance sheet, the unit cost would be: c. What is the operating profit using variable costing? d. What is the operating profit using full-absorption costing? e. What is the ending inventory using full-absorption costing? f. What is the ending inventory undervariable costing?

Answer 1

A) $5.6/unit

Absorption costing allocates fixed overhead costs to a product whether or not it was sold in the period. This type of costing means that more cost is included in the ending inventory, which is carried over into the next period as an asset on the balance sheet.

B)$4/unit

Product costs, under variable costing, includes the VARIABLE costs only like direct materials, direct labor and variable overhead. Fixed overhead would not be included as a product cost!

C) operating profit using variable costing

sales= 80000x12 =960000

cost of goods sold=80000x4 =(240000)

gross profit = 720000

factory oh =(240000)

markng and admin expense =(128000)

operting profit =$352000

D) operating profit under absorption costing

sales =80000x12 =960000

cost of sales =80000x5.6 =(448000)

gross profit = 512000

factory oh =(240000)

markng and admin expense =(128000)

operating profit = $144000

E)

Valuation of inventory - opening and closing inventory are valued at full production cost under absorption costing.

closing inventory=20000x5.6=$112000

F)

Valuation of inventory - closing inventory are valued at marginal (variable) cost under marginal costing.

closing inventory= 20000x4=$80000