Question

1.       Howley Company has the following information for April:

                        

                        Sales                            $912,000

                        VC of goods sold           474,000

                        FC – mfg.                          82,000

                        VC – selling & adm.       238,000

                        FC – selling & adm.          54,700

     Determine:

1. The Manufacturing Margin
2. The Contribution Margin
3. Operating Income for Howley during the month of April.

2.       FC Mfg.       $44/unit

            VC Mfg.      $100/unit

            Production     67,200 units

            Sales              50,400

            Determine:

1. Whether Variable Costing operating income is less than or greater than Absorption Costing operating income.   

2. The value difference of in Operating Income when using Variable Costing as opposed to Absorption Costing.

3.           Beginning Inventory                       52,500 units

                Beginning Inventory Costs:

                         Fixed Mfg. Costs                         $14.70/unit

                         Variable Mfg. Costs                    $30.00/unit

            

            During the month of April, all the beginning inventory units were sold as well as all the       

            units that were manufactured during April.

            Determine:

1. Whether Variable Costing operating income is less than or greater than Absorption Costing operating income.

2. The value difference of in Operating Income when using Variable Costing as opposed to Absorption Costing.   

4.                   VC – Mfg.                   $126/unit

                         FC – Mfg.                  $157,500

                         Sales estimate                  10,000 units

      Determine:

1. How much would Absorption Costing Operating Income differ between a plan to produce 10,000 units and a plan to produce 15,000 units?        

b. How much would Variable Costing Operating Income differ between the two production plans.

Answer 1

Answer is given with working below

Manufacturing Margin $356,000 $912,000 Sales Less: Cost of goods sold VC of goods sold FC-mfg Manufacturing Margin $474,000 $82,000 $356,000 Contribution Margin $200,000 $912,000 Sales Less: Variable Cost VC of goods sold VC-selling and admin Manufacturing Margin $474,000 $238,000 $200,000 $912,000 $474,000 $82,000 Sales Less: Variable Cost vc of goods sold FC-mfg Gross profit VC-selling and admin FC-selling and admin Operating Income $556,000 $356,000 $238,000 $54,700 $292,700 $63,300 Variable costing income will be lower than Absorption costing income Reason: closing inventory will increase income in Absorption costing b Value in difference $739,200 Production Sales Closing stock FC Mfg/unit Difference in Operating Income 67,200 50,400 16,800 units $44 $739,200 | a Variable Costing Income will be higher than Absorption Costing Income b Value difference of Operating Income $771,750 Opening stock Fixed Mfg cost /unit Impact on Operating Income 52,500 units $14.70 $771,750 a Absorption costing income would differ by $52,500 if 5,000 extra units produced Production Fixed manufacturing cost Fixed manufacturing cost per unit Closing stock Increase in Income 10,000 $157,500 $15.75 15,000 $157,500 $10.50 A 5,000 B $52,500 AXB b Variable costing income will be no difference between 2 production plans Reason being fixed manufacturing cost is treated as period cost and charged to the period in which it is incurred