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.

Sales price per unit	$	320	per unit
Units produced this year		100,000	units
Units sold this year		103,500	units
Units in beginning-year inventory		3,500	units
Beginning inventory costs
Variable (3,500 units × $135)	$	472,500
Fixed (3,500 units × $70)		245,000
Total	$	717,500
Manufacturing costs this year
Direct materials	$	44	per unit
Direct labor	$	68	per unit
Overhead costs this year
Variable overhead	$	3,000,000
Fixed overhead	$	7,400,000
Selling and administrative costs this year
Variable	$	1,300,000
Fixed		4,200,000

1. Prepare the current-year income statement for the company using variable costing.

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.

Sales price per unit	$	320	per unit
Units produced this year		100,000	units
Units sold this year		103,500	units
Units in beginning-year inventory		3,500	units
Beginning inventory costs
Variable (3,500 units × $135)	$	472,500
Fixed (3,500 units × $70)		245,000
Total	$	717,500
Manufacturing costs this year
Direct materials	$	44	per unit
Direct labor	$	68	per unit
Overhead costs this year
Variable overhead	$	3,000,000
Fixed overhead	$	7,400,000
Selling and administrative costs this year
Variable	$	1,300,000
Fixed		4,200,000

2. Prepare the current year income statement for the company using absorption costing.

Answer 1

OAK MART COMPANY
Variable Costing Income Statement
Sales                                                  [Units sold x Sales price per unit = 103,500 x $320]		$33,120,000
Less: Variable Costs
Beginning inventory
Variable costs	$472,500
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 $68]	$6,800,000
Variable overhead costs	$3,000,000
Total variable costs available	$14,672,500
Less: Ending finished goods inventory	$0
Variable cost of goods sold	$14,672,500
Variable selling and administrative Expenses	$1,300,000
Total variable costs                [$14,672,500 + $1,300,000]		$15,972,500
Contribution Margin             [Sales - Total variable costs]		$17,147,500
Less: Fixed expenses
Fixed selling and administrative Expenses	$4,200,000
Fixed overhead costs	$7,400,000
Total fixed expenses		$11,600,000
Net Income (Loss)		$5,547,500

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.

OAK MART COMPANY
Absorption Costing Income Statement
Sales                                                               [Units sold x Sales price per unit = 103,500 x $320]		$33,120,000
Less: Cost of Goods Sold
Beginning inventory                           [Variable + Fixed = $472,500 + $245,000]	$717,500
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 $68]	$6,800,000
Variable overhead costs	$3,000,000
Fixex overhead costs	$7,400,000
Less: Ending inventory	$0
Cost of goods sold		$22,317,500
Gross Margin                                                 [Sales - Cost of Goods Sold]		$10,802,500
Selling, general and administrative Expenses
Variable selling and administrative Expenses	$1,300,000
Fixed selling and administrative Expenses	$4,200,000
Total Selling, general and administrative Expenses		$5,500,000
Net Income (Loss)		$5,302,500
Net Income under variable costing is higher than net income under absorption costing by          [$5,547,500 - $5,302,050]		$245,000
Number of units added to (subtracted to) inventory [Beginning inventory]		3,500
Fixed overhead cost per unit [$245,000 / 3,500 units]		$70
Fixed costs added to inventory		$245,000