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Homework answers / question archive / You will only be allowed to do your assignment by using excel or word
You will only be allowed to do your assignment by using excel or word. If you send the same assignment, your assignment will be and report to school for 2" offence. Assignment is worth 10% Example-1 Variable and absorption costing, explaining operating-income differences. EntertainMe Corporation manufactures and sells 50-inch television sets and uses standard costing, Actual data relating to January, February, and March 2017 are as follows: January February March Unit data Beginning inventory 0 ISO ISO Production 1,500 1,400 1.520 Sales 1,350 1,400 1.530 Variable costs: Manufacturing cost per unit produced S S 1.000 $ 1,000 1,000 Operating (marketing) cost per unit S S 800 $ sold 800 800 Fixed costs: Manufacturing costs S525,000 S525,000 $525.000 Operating (marketing) costs $130,000 S130,000 $130,000 The selling price per unit is $3,300. The budgeted level of production used to calculate the budgeted fixed manufacturing cost per unit is 1,500 units. There are no price, efficiency, or spending variances. Any -production-volume variance is written off to cost of goods sold in the month in which it occurs. 1. Prepare income statements for Entertain Me in January, February, and March 2017 under (a) variable costing and (b) absorption costing. 2. Explain the difference in operating income for January, February, and March under variable costing and absorption costing, Example-2 Variable manufacturing overhead variance analysis. The Sourdough Bread Company bakes baguettes for distribution to upscale grocery stores. The company has two direct-cost categories: direct materials and direct manufacturing labor. Variable manufacturing overhead is allocated to products on the basis of standard direct manufacturing labor-hours. Following is some budget data for the Sourdough Bread Company Direct manufacturing labor use 0.02 hours per baguette Variable manufacturing overhead S10.00 per direct manufacturing labor-hour The Sourdough Bread Company provides the following additional data for the year ended December 31, 2017: Planned (budgeted) output Actual production Direct manufacturing labor Actual variable manufacturing overhead 3,100,000 baguettes 2,600,000 baguettes 46,800 hours $617.760 Required: 1. What is the denominator level used for allocating variable manufacturing overhead? (That is, for how many direct manufacturing labor-hours is Sourdough Bread budgeting?) 2. Prepare a variance analysis of variable manufacturing overhead. 3. Discuss the variances you have calculated and give possible explanations for them.
1. Variable Costing
| Sr. No. | Particulars | Jan-17 | Feb-17 | Mar-17 |
| a | Variable Manufacturing cost | $ 1,000 | $ 1,000 | $ 1,000 |
| b | Product cost per unit | $ 1,000 | $ 1,000 | $ 1,000 |
| c | Closing Inventory (Units) | 150 | 150 | 140 |
| d | Closing Stock Value (b*c) | $ 150,000 | $ 150,000 | $ 140,000 |
Income Statement
| EntertainMe Corporation | ||||||
| Income Statement Variable Costing | ||||||
| Particulars | Jan-17 | Feb-17 | Mar-17 | |||
| Sales | $ 4,455,000 | $ 4,620,000 | $ 5,049,000 | |||
| Less: Variable cost of Goods sold | ||||||
| Beginning FG inventory | $ 150,000 | $ 150,000 | ||||
| Variable cost of Goods manufactured | ||||||
| Variable Manufacturing cost | $ 1,500,000 | $ 1,400,000 | $ 1,520,000 | |||
| Cost of Goods available for sale | $ 1,500,000 | $ 1,550,000 | $ 1,670,000 | |||
| Less: Closing Stock | $ 150,000 | $ 150,000 | $ 140,000 | |||
| Variable cost of Goods sold | $ 1,350,000 | $ 1,400,000 | $ 1,530,000 | |||
| Variable Marketing cost | $ 1,080,000 | $ 1,120,000 | $ 1,224,000 | |||
| Contribution Margin | $ 2,025,000 | $ 2,100,000 | $ 2,295,000 | |||
| Manufactuing Cost | $ 525,000 | $ 525,000 | $ 525,000 | |||
| Marketing costs | $ 130,000 | $ 130,000 | $ 130,000 | |||
| Fixed cost | $ 655,000 | $ 655,000 | $ 655,000 | |||
| Net Operating Income | $ 1,370,000 | $ 1,445,000 | $ 1,640,000 |
Absorption Costing
| Sr. No. | Particulars | Jan-17 | Feb-17 | Mar-17 |
| a | Variable Manufacturing cost | $ 1,000 | $ 1,000 | $ 1,000 |
| b | Fixed Manufacturing cost | $ 350 | $ 375 | $ 345 |
| c | Product cost per unit (a+b) | $ 1,350 | $ 1,375 | $ 1,345 |
| d | Closing Inventory (Units) | 150 | 150 | 140 |
| e | Closing Stock Value (c*d) | $ 202,500 | $ 206,250 | $ 188,355 |
Income statement
| EntertainMe Corporation | ||||||
| Income Statement Absorption Costing | ||||||
| Particulars | Jan-17 | Feb-17 | Mar-17 | |||
| Sales | $ 4,455,000 | $ 4,620,000 | $ 5,049,000 | |||
| Less: Variable cost of Goods sold | ||||||
| Beginning FG inventory | $ 202,500 | $ 206,250 | ||||
| Variable cost of Goods manufactured | ||||||
| Variable Manufacturing cost | $ 1,500,000 | $ 1,400,000 | $ 1,520,000 | |||
| Fixed Manufacturing cost | $ 525,000 | $ 525,000 | $ 525,000 | |||
| Cost of Goods available for sale | $ 2,025,000 | $ 2,127,500 | $ 2,251,250 | |||
| Less: Closing Stock | $ 202,500 | $ 206,250 | $ 188,355 | |||
| Cost of Goods sold | $ 1,822,500 | $ 1,921,250 | $ 2,062,895 | |||
| Gross Profit | $ 2,632,500 | $ 2,698,750 | $ 2,986,105 | |||
| Less: Operating Expenses | ||||||
| Variable Marketing cost | $ 1,080,000 | $ 1,120,000 | $ 1,224,000 | |||
| Fixed Marketing expense | $ 130,000 | $ 130,000 | $ 130,000 | |||
| Fixed cost | $ 1,210,000 | $ 1,250,000 | $ 1,354,000 | |||
| Net Operating Income | $ 1,422,500 | $ 1,448,750 | $ 1,632,105 |
2. The reason for difference in Operating Income is due to fixed manufacturing cost which is treated as product cost in variable closing in Absorption costing the fixed manufacturing cost is partof product cost and hence closing stock includes a portion of fixed manufacturing OH.
| EntertainMe Corporation | ||||||
| Reconsiliation of difference in Operating Income | ||||||
| Particulars | Jan-17 | Feb-17 | Mar-17 | |||
| Operating Income as per Absorption costing | $ 1,422,500 | $ 1,448,750 | $ 1,632,105 | |||
| Less: Difference in Closing Stock - Fixed Manufacturing OH | ||||||
| Closing stock as per Absorption costing | $ 202,500 | $ 206,250 | $ 188,355 | |||
| Closing stock as per Absorption costing | $ 150,000 | $ (52,500) | $ 150,000 | $ (56,250) | $ 140,000 | $ (48,355) |
| Add: Difference in Closing Stock - Fixed Manufacturing OH | ||||||
| Opening stock as per Absorption costing | $ 202,500 | $ 206,250 | ||||
| Opening stock as per Absorption costing | $ 150,000 | $ 52,500 | $ 150,000 | $ 56,250 | ||
| Operating Income as per Variable costing | $ 1,370,000 | $ 1,445,000 | $ 1,640,000 |
