Thursday, 2 August 2012

Shastri Bicycle of Bombay, India, produces an inexpensive, yet rugged,


Shastri Bicycle of Bombay, India, produces an inexpensive, yet rugged, bicycle for use on the city’s crowded streets that it sells for 500 rupees. (Indian currency is denominated in rupees, denoted by Picture.) Selected data for the company’s operations last year follow:




  Units in beginning inventory

0  
  Units produced

10,000  
  Units sold

8,000  
  Units in ending inventory

2,000  
  Variable costs per unit:


       Direct materials

Picture120  
       Direct labor

Picture140  
       Variable manufacturing overhead

Picture50  
       Variable selling and administrative

Picture20  
  Fixed costs:


       Fixed manufacturing overhead
Picture
600,000  
       Fixed selling and administrative
Picture
400,000  


The absorption costing income statement prepared by the company’s accountant for last year appears below:




  Sales
Picture
4,000,000  
  Cost of goods sold

2,960,000  



  Gross margin

1,040,000  
  Selling and administrative expense

560,000  



  Net operating income
Picture
480,000  

Required:

1.
Determine how much of the ending inventory consists of fixed manufacturing overhead cost deferred in inventory to the next period. (Omit the "Picture" sign in your response.)

  Total fixed manufacturing overhead in ending inventory
Picture120,000 correct  

2.
Prepare an income statement for the year using variable costing. (Input all amounts as positive values except losses which should be indicated by a minus sign. Omit the "Picture" sign in your response.)

Variable Costing Income Statement
  Sales correct

Picture4,000,000 correct  
  Variable expenses:


       Variable cost of goods sold correct
Picture correct  

       Variable selling and administrative expenses correct
 correct  
2,640,000 correct  



  Contribution margin correct

1,360,000 correct  
  Fixed expenses:


       Fixed manufacturing overhead correct
 correct  

       Fixed selling and administrative expenses correct
 correct  
1,000,000 correct  



  Net operating income (loss) correct

Picture360,000 correct