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 Units produced this year Units sold this year Units in beginning-year inventory Beginning inventory costs 320 per unit 115,000 units 118,500 units 3,500 units Variable (3,500 units x $135) Fixed (3,500 units × $70) Total $ 472,500 245,000 $ 717,500 Manufacturing costs this year Direct materials Direct labor Overhead costs this year 48 per unit 70 per unit Variable overhead Fixed overhead $3,200,000 $7,480,000 Selling and administrative costs this year Variable Fixed $1,450,000 4,600,000 1. Prepare the current-year income statement for the company using variable costing

Answer 1

Answer 1.

OAK MART COMPANY Variable Costing Income Statement Sales ($320 118,500) Less: Variable Costs Beginning Inventory: Variable Costs Manufacturing cost this year Direct materials ($48 115,000) Direct labor ($70 115,000) Variable overhead costs Total variable costs available Less: Ending finished goods inventory Variable cost of goods sold Variable selling and administrative expenses Total variable costs Contribution margin Less: Fixed expenses Fixed overhead costs Fixed selling and administrative costs Total fixed expenses Net income (loss) 37920000 472500 5520000 8050000 3200000 17242500 0 17242500 1450000 18692500 19227500 7400000 4600000 12000000 7227500

Answer 2.

OAK MART COMPANY Absorption Costing Income Statement Sales ($320 118,500) Less: Cost of goods sold Beginning Inventory Manufacturing cost this year Direct materials ($48 115,000) Direct labor ($70 115,000) Variable overhead costs Fixed overhead costs Less: Ending inventory Cost of goods sold Gross margin Selling general and administrative expenses Variable selling and administrative costs Fixed selling and administrative costs Total Selling general and administrative expenses Net income (loss) 37920000 717500 5520000 8050000 3200000 7400000 0 24887500 13032500 1450000 4600000 6050000 6982500 Net income under variable costing is higher than net income under absorption costin Number of units added to (subtracted from) inventory Fixed overhead cost per unit Fixed costs added to (subtracted from) inventory 245000 3500 70 245000