Question

Acme Industries, which produces just one product, provides the following information regarding its operations for 2019. The firm uses LIFO to model inventory cost flows and has no work in process.

Item	Units	Amount (total value)	Amount for FMOH in total*	Per unit (total)	Per unit (FMOH)
Opening finished goods inventory	2,000	$18,000	$4,000	$9.00	$2.00
Units completed (transfers from WIP)	145,000	1,319,500	297,250	9.10	2.05
Sold during 2019
Ending finished goods inventory	2,250	?
Revenue		1,650,000
SGA costs (80% fixed)		200,000

*FMOH = Fixed manufacturing overhead (part of total value of inventory)

Determine the following:

Item	Answer	Hint
Total value of ending inventory		Can do this without doing income statement. Be sure to use LIFO.
Contribution margin
Income as under variable costing (also known as direct costing or CM format income statement)		Look to FMOH moving into or out of inventory.
Income as under absorption costing (also known as full costing or GM format income statement)

Answer 1

Total value of Ending Inventory - Absorption costing Cost per Units unit Opening FG inventory 2,000 $9.00 Current production 250 $9.10 Total value of Ending Inventory - Absorption costing Total value $18,000 $2,275 $20,275 Answer Total value of Ending Inventory - Variable costing Cost per Units unit Opening FG inventory 2,000 $7.00 Current production 250 $7.05 Total value of Ending Inventory - Variable costing Total value $14,000 $1,763 $15,763 Answer Contribution Margin $589,513 Income as per Variable costing $132,263 Income as per Absorption Costing $132,775 Working notes: 2,250 Ending FG Inventory As per LIFO Opening FG inventory Current production 2,000 250 Opening FG inventory Units completed $2,000 $145,000 $147,000 $2,250 $144,750 Ending inventory Sales units Working notes: Sales Variable cost Income Statement $1,650,000 Variable cost $1,020,488 144,750*$7.05 ISG & A $40,000 Contribution Margin $589,513 Fixed cost Manufacturing $297,250 SG & A $160,000 $457,250 Net Income $132,263 Profit as per absorption costing $132,775 $4,000 2,000*$2 Inventory differences Opening inventory Finished goods FMOH included Closing Inventory of Finished goods FMOH included Absorption costing profit should be (Higher by) $4,513 2,000*$2 + 250 *$2.05 $513 Variable cost Total amount $18,000 $1,319,500 Opening FG inventory Units completed Fixed cost $4,000 $297,250 $14,000 per unit $7.00 $7.05 $1,022,250 Absorption Costing Income Statement Sales $1,650,000 Cost of goods sold $1,317,225 144,750*$9.10 Gross profit $332,775 SG & A $200,000 Net Income $132,775