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The following information is available for Trailblazer, a manufacturer of four- wheel all-terrain vehicles: 2017 2018 Vehicles produced 20,000 16,000 Vehicles sold 18,000 18,000 $8,000 $8,000 Selling price per unit Direct material per unit Direct labor per unit $1,600 $1,600 $3,000 $3,000 $600 Variable manufacturing overhead per unit $600 Fixed manufacturing overhead per year $4,800,000 Fixed selling and administrative expense per year $3,000,000 $4,800,000 $3,000,000 Beginning inventory contained zero units
The following information is available for Trailblazer, a manufacturer of four- wheel all-terrain vehicles: 2017 2018 Vehicles produced 20,000 16,000 Vehicles sold 18,000 18,000 $8,000 $8,000 Selling price per unit Direct material per unit Direct labor per unit $1,600 $1,600 $3,000 $3,000 $600 Variable manufacturing overhead per unit $600 Fixed manufacturing overhead per year $4,800,000 Fixed selling and administrative expense per year $3,000,000 $4,800,000 $3,000,000 Beginning inventory contained zero units. In the company's second year, the company needed to get rid of excess inventory (the extra units produced but not sold in 2017), so it cut back production to 16,000 units. Calculate profit for both years using variable costing. b. How much is reported as ending inventory when using variable costing for each year? a.
Expert Solution
Part-1)
|
|
2017 |
2018 |
Total |
|
Variable manufacturing costs per unit |
$5,200 |
$5,200 |
|
|
Sales ($8,000 × 18,000 units) |
$144,000,000 |
$144,000,000 |
|
|
Minus: Cost of goods sold ($5,200 * 18,000 units) |
93,600,000 |
93,600,000 |
|
|
Contribution margin |
50,400,000 |
50,400,000 |
|
|
Minus: Fixed costs |
|
|
|
|
Manufacturing |
4,800,000 |
4,800,000 |
|
|
Selling and administrative |
3,000,000 |
3,000,000 |
|
|
Net income |
$42,600,000 |
$42,600,000 |
$85,200,000 |
Part-2)
|
|
2017 |
2018 |
|
Ending inventory |
$10,400,000 |
$0 |
Part-3) Variable costing provides a more realistic view of the performance of the firm. In that firm's income remains the same in both years, and remains consistent with the firm having the same structure of cost and sales level in both years.
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