Question

Play ebruary Und data Production Sales Variable costs S 900 S 900 00 Foxed costsCosts S400,000 $00,000 $400,000 S140,000 $140,000 $140,000 costs budgeted level of production used to calculate the budgeted variances. variance is written off to cost of goods sold in the month in which it occurs for BigScreen in January, February, and March of 2012 under (a) variable 76%

Answer 1

	January	February	March
Beginning inventory	0	300	300
Production	1000	800	1250
Goods available for sale	1000	1100	1550
Units sold	700	800	1500
Ending inventory	300	300	50

The budgeted fixed manufacturing cost per unit and budgeted total manufacturing cost per unit under absorption costing are:

		January	February	March
(a)	Budgeted fixed manufacturing costs	400000	400000	400000
(b)	Budgeted production	1000	1000	1000
(c)=(a)÷(b)	Budgeted fixed manufacturing cost per unit	400	400	400
(d)	Budgeted variable manufacturing cost per unit	900	900	900
(e)=(c)+(d)	Budgeted total manufacturing cost per unit	1300	1300	1300

Part 1

Variable costing

	January 2012		February 2012		March 2012
Revenues		1750000		2000000		3750000
Variable costs
Beginning inventory	0		270000		270000
Variable manufacturing costs	900000		720000		1125000
Cost of goods available for sale	900000		990000		1395000
Deduct ending inventory	(270000)		(270000)		(45000)
Variable cost of goods sold	630000		720000		1350000
Variable operating costs	420000		480000		900000
Total variable costs		1050000		1200000		2250000
Contribution margin		700000		800000		1500000
Fixed costs
Fixed manufacturing costs	400000		400000		400000
Fixed operating costs	140000		140000		140000
Total fixed costs		540000		540000		540000
Operating income		160000		260000		960000

2500*700 =1750000

2500*800 =2000000

2500*1500 =3750000

300*900 = 270000

1000*900= 900000

800*900= 720000

1250*900 = 1125000

300*900 = 270000

50*900 = 45000

600*700 = 420000

600*800 = 480000

600*1500 = 900000

B Absorption costing

	January 2012		February 2012		March 2012
Revenues		1750000		2000000		3750000
Cost of goods sold
Beginning inventory	0		390000		390000
Variable manufacturing costs	900000		720000		1125000
Allocated fixed manufacturing costs	400000		320000		500000
Cost of goods available for sale	1300000		14300000		2015000
Deduct ending inventory	(390000)		(390000)		(65000)
Adjustment for prod. vol. var	0		80000		(225000)
Cost of goods sold		910000		1120000		1725000
Gross margin		840000		880000		2025000
Operating costs
Variable operating costs	420000		480000		900000
Fixed operating costs	140000		140000		140000
Total operating costs		560000		620000		1040000
Operating income		280000		260000		985000

300*1300 = 390000                   

1000*400 = 400000

800*400 = 320000

1250*400 = 500000

300*1300 = 390000

50*1300 = 65000

900000-720000 = 80000

900000-1125000 = -225000

Part 2

January = 280000-160000 = 120000

February = 260000-260000 = 0

March = 985000-960000 = 25000

Moving fixed manufacturing costs into inventories is the main reason for the difference between absorption and variable costing