Linden Company manufactures and sells a single product. Cost data for the product follow: Variable costs per unit: Direct materials $6 Direct labor 12 Variable factory overhead 4 Variable selling and administrative 3 Total variable costs per unit $25 Fixed costs per month: Fixed manufacturing overhead $ 240,000 Fixed selling and administrative 180,000 Total fixed cost per month $ 420,000 The product sells for $40 per unit. Production and sales data for May and June, the first two months of operations, are as follows: Units Produced Units Sold May 30,000 26,000 June 30,000 34,000 Income statements prepared by the accounting department, using absorption costing, are presented below: May June Sales $ 1,040,000 $ 1,360,000 Cost of goods sold 780,000 1,020,000 Gross margin 260,000 340,000 Selling and administrative expenses 258,000 282,000 Net operating income $ 2,000 $ 58,000 Required: 1. Determine the unit product cost under absorption costing and variable costing. Unit Product Cost Absorption costing Variable costing 2. Prepare contribution format variable costing income statements for May and June. (Input all amounts as positive values except losses which should be indicated by a minus sign. Omit the "$" sign in your response.) Variable Costing Income Statement May June Sales $ $ Variable expenses: Variable cost of goods sold Variable selling and administrative expenses Total variable expenses Contribution margin Fixed expenses: Fixed manufacturing overhead Fixed selling and administrative expenses Total fixed expenses Net operating income (loss) $ $ 3. Reconcile the variable costing and absorption costing net operating incomes. (Loss amounts and amounts to be deducted should be indicated with a minus sign. Omit the "$" sign in your response.) Reconciliation of Variable Costing and Absorption Costing Net Operating Incomes May June Variable costing net operating income (loss) $ $ Add (deduct) fixed manufacturing overhead deferred in (released from) inventory under absorption costing Absorption costing net operating income (loss) $ $ Explanation: 1. Absorption Costing Variable Costing Direct materials $ 6 $ 6 Direct labor 12 12 Variable manufacturing overhead 4 4 Fixed manufacturing overhead ($240,000 ÷ 30,000 units) 8 - Unit product cost $ 30 $ 22 2. May June Variable cost of goods sold @ $22 per unit $ 572,000 $ 748,000 Variable selling and administrative expenses @ $3 per unit $ 78,000 $ 102,000 3. Fixed manufacturing overhead cost deferred in inventory under absorption costing (4,000 units × $8 per unit) = $32,000 Fixed manufacturing overhead cost released from inventory under absorption costing (4,000 units × $8 per unit) = $(32,000)

Linden Company manufactures and sells a single product. Cost data for the product follow:

Variable costs per unit:
Direct materials		$6
Direct labor		12
Variable factory overhead		4
Variable selling and administrative		3
Total variable costs per unit		$25
Fixed costs per month:
Fixed manufacturing overhead	$	240,000
Fixed selling and administrative		180,000
Total fixed cost per month	$	420,000

The product sells for $40 per unit. Production and sales data for May and June, the first two months of operations, are as follows:

	Units Produced	Units Sold
May	30,000	26,000
June	30,000	34,000

Income statements prepared by the accounting department, using absorption costing, are presented below:

	May		June
Sales	$	1,040,000	$	1,360,000
Cost of goods sold		780,000		1,020,000
Gross margin		260,000		340,000
Selling and administrative expenses		258,000		282,000
Net operating income	$	2,000	$	58,000

Required:

1.	Determine the unit product cost under absorption costing and variable costing.

		Unit Product Cost
Absorption costing
Variable costing

2.	Prepare contribution format variable costing income statements for May and June. (Input all amounts as positive values except losses which should be indicated by a minus sign. Omit the "$" sign in your response.)

Variable Costing Income Statement
	May	June
Sales	$	$
Variable expenses:
Variable cost of goods sold
Variable selling and administrative expenses
Total variable expenses
Contribution margin
Fixed expenses:
Fixed manufacturing overhead
Fixed selling and administrative expenses
Total fixed expenses
Net operating income (loss)	$	$

3.	Reconcile the variable costing and absorption costing net operating incomes. (Loss amounts and amounts to be deducted should be indicated with a minus sign. Omit the "$" sign in your response.)

Reconciliation of Variable Costing and Absorption Costing Net Operating Incomes
	May	June
Variable costing net operating income (loss)	$	$
Add (deduct) fixed manufacturing overhead deferred in   (released from) inventory under absorption costing
Absorption costing net operating income (loss)	$	$

Explanation: 1.

	Absorption Costing		Variable Costing
Direct materials	$	6	$	6
Direct labor		12		12
Variable manufacturing overhead		4		4
Fixed manufacturing overhead   ($240,000 ÷ 30,000 units)		8		-
Unit product cost	$	30	$	22

2.

	May		June
Variable cost of goods sold @ $22 per unit	$	572,000	$	748,000
Variable selling and administrative expenses @ $3 per unit	$	78,000	$	102,000

3.

Fixed manufacturing overhead cost deferred in inventory under absorption costing (4,000 units × $8 per unit) = $32,000

Fixed manufacturing overhead cost released from inventory under absorption costing (4,000 units × $8 per unit) = $(32,000)

During Denton Company’s first two years of operations, the company reported absorption costing net operating income as follows:

During Denton Company’s first two years of operations, the company reported absorption costing net operating income as follows:

	Year 1		Year 2
Sales (@ $50 per unit)	$	1,000,000	$	1,500,000
Cost of goods sold (@ $34 per unit)		680,000		1,020,000
Gross margin		320,000		480,000
Selling and administrative expenses*		310,000		340,000
Net operating income	$	10,000	$	140,000

* $3 per unit variable; $250,000 fixed each year.

The company’s $34 unit product cost is computed as follows:

Direct materials	$	8
Direct labor		10
Variable manufacturing overhead		2
Fixed manufacturing overhead ($350,000 ÷ 25,000 units)		14
Absorption costing unit product cost	$	34

   

Production and cost data for the two years are given below:

	Year 1	Year 2
Units produced	25,000	25,000
Units sold	20,000	30,000

Required:

1.	Prepare a variable costing contribution format income statement for each year. (Input all amounts as positive values except losses which should be indicated by a minus sign. Omit the "$" sign in your response.)

Variable Costing Income Statement
	Year 1	Year 2
Sales	$	$
Variable expenses:
Variable cost of goods sold
Variable selling and administrative expenses
Total variable expenses
Contribution margin
Fixed expenses:
Fixed manufacturing overhead
Fixed selling and administrative expenses
Total fixed expenses
Net operating income (loss)	$	$

2.	Reconcile the absorption costing and variable costing net operating income figures for each year. (Loss amounts and amounts to be deducted should be indicated with a minus sign. Omit the "$" sign in your response.)

Reconciliation of Variable Costing and Absorption Costing Net Operating Incomes
	Year 1	Year 2
Variable costing net operating income (loss)	$	$
Add (deduct) fixed manufacturing overhead   deferred in (released from) inventory under   absorption costing
Absorption costing net operating income (loss)	$	$

Explanation:

1. 

The unit product cost under the variable costing is computed as follows:

Direct materials	$	8
Direct labor		10
Variable manufacturing overhead		2
Variable costing unit product cost	$	20

 

	Year 1		Year 2
Variable cost of goods sold @ $20 per unit	$	400,000	$	600,000
Variable selling and administrative expenses @ $3 per unit	$	60,000	$	90,000

2.

Add (deduct) fixed manufacturing overhead deferred in (released from) inventory under absorption costing (5,000 units × $14 per unit in Year 1; 5,000 units × $14 per unit in Year 2) = $70,000

Wiengot Antennas, Inc., produces and sells a unique type of TV antenna. The company has just opened a new plant to manufacture the antenna, and the following cost and revenue data have been provided for the first month of the plant’s operation.

Wiengot Antennas, Inc., produces and sells a unique type of TV antenna. The company has just opened a new plant to manufacture the antenna, and the following cost and revenue data have been provided for the first month of the plant’s operation.

Beginning inventory		0
Units produced		40,000
Units sold		35,000
Selling price per unit		$60
Selling and administrative expenses:
Variable per unit		$2
Fixed (total)	$	560,000
Manufacturing costs
Direct materials cost per unit		$15
Direct labor cost per unit		$7
Variable manufacturing overhead cost per unit		$2
Fixed manufacturing overhead cost (total)	$	640,000

Because the new antenna is unique in design, management is anxious to see how profitable it will be and has asked that an income statement be prepared for the month.

   

Required:

1.	Assume that the company uses absorption costing.

  

a.	Determine the unit product cost. (Omit the "$" sign in your response.)

Unit product cost

$

b.	Prepare an income statement for the month. (Input all amounts as positive values except losses which should be indicated by a minus sign. Omit the "$" sign in your response.)

Absorption Costing Income Statement
Sales	$
Cost of goods sold
Gross margin
Selling and administrative expenses
Net operating income (loss)	$

    

2.	Assume that the company uses variable costing.

   

a.	Determine the unit product cost. (Omit the "$" sign in your response.)

Unit product cost

$

b.	Prepare a contribution format income statement for the month. (Input all amounts as positive values except losses which should be indicated by a minus sign. Omit the "$" sign in your response.)

    

Variable Costing Income Statement
Sales		$
Variable expenses:
Variable cost of goods sold	$
Variable selling and administrative expenses
Contribution margin
Fixed expenses:
Fixed manufacturing overhead
Fixed selling and administrative expenses
Net operating income (loss)		$

Explanation: 1.
a.
The unit product cost under absorption costing is:
 

Direct materials	$	15
Direct labor		7
Variable manufacturing overhead		2
Fixed manufacturing overhead (640,000 ÷ 40,000 units)		16
Absorption costing unit product cost	$	40

b.

Sales (35,000 units × $60 per unit) = $2,100,000

Cost of goods sold (35,000 units × $40 per unit) = $1,400,000

Selling and administrative expenses (35,000 units × $2 per unit) + $560,000 = $630,000

2.
a.
The unit product cost under variable costing is:
 

Direct materials	$	15
Direct labor		7
Variable manufacturing overhead		2
Variable costing unit product cost	$	24

b.

Sales (35,000 units × $60 per unit) = $2,100,000

Variable cost of goods sold (35,000 units × $24 per unit) = $840,000

Variable selling and administrative expense (35,000 units × $2 per unit) = $70,000