Question

1. The following data is related to sales and production of the Tarkio Corporation for last year.

Selling price per unit $60.00

Variable manufacturing cost per unit $25.00

Variable selling and administrative expense per unit $6.00

Fixed manufacturing overhead (in total) $50,000

Fixed selling and administrative expenses (in total) $8,000

Units produced during year 10,000 Units sold during year 8,000

Units in beginning inventory 0

Units in ending inventory 2,000

a. How much is Tarkio’s Gross Margin for last year? Use absorption costing to compute Gross Margin.

b. If Tarkio uses absorption costing, at what amount would it value its inventory?

c. How much is Tarkio’s Contribution Margin for last year?

d. If Tarkio uses direct or variable costing, at what amount would it value its inventory?

Answer 1

Ans. A	TARKIO CORPORATION
	Absorption Costing Income Statement   (PARTIAL)
	PARTICULARS	Amount
	Sales   (8,000 * $60)	$480,000
	Less: Cost of goods sold   ($30 * 8,000)	$240,000
	Gross margin	$240,000
	*Calculation of unit product cost:
	Variable Overhead per unit	$25.00
	Fixed overhead per unit   ($50,000 / 10,000)	$5.00
	Product Cost per unit	$30.00
Ans. B	Value of inventory (ending) = Ending inventory units * Unit product cost
	2,000 * $30
	$60,000
Ans. C	TARKIO CORPORATION
	Variable Costing Income Statement (PARTIAL)
	Particulars	Amount
	Sales   (8,000 * $60)	$480,000
	Less: Variable cost of goods sold ($25 * 8,000)	$200,000
	Gross Contribution Margin	$280,000
	Less: Variable Selling and Administrative expenses (8,000 * $6)	$48,000
	Contribution Margin	$232,000
Ans. D	Value of inventory (ending) = Ending inventory units * Variable manufacturing cost per unit
	2,000 * $25
	$50,000