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

Micro Products, Inc., has developed a very powerful electronic calculator. Each calculator requires

Micro Products, Inc., has developed a very powerful electronic calculator. Each calculator requires three small “chips” that cost $2 each and are purchased from an overseas supplier. Micro Products has prepared a production budget for the calculator by quarters for Year 2 and for the first quarter of Year 3, as shown below:

  

	Year 2					Year 3
	First	Second	Third	Fourth		First
Budgeted production, in calculators	60,000	90,000	150,000	100,000		80,000

  

The chip used in production of the calculator is sometimes hard to get, so it is necessary to carry large inventories as a precaution against stockouts. For this reason, the inventory of chips at the end of a quarter must equal 20% of the following quarter’s production needs. A total of 36,000 chips will be on hand to start the first quarter of Year 2.

   

Required:

Prepare a direct materials budget for chips, by quarter and in total, for Year 2. (Do not round intermediate calculations. Input all amounts as positive values. Omit the "$" sign in your response.)

   

Micro Products, Inc. Direct Materials Budget - Year 2
	Quarter
	First	Second	Third	Fourth	Year
Required production in calculators	60,000	90,000	150,000	100,000	400,000
Number of chips per calculator	×  3	×  3	×  3	×  3	×  3
Production needs—chips	180,000	270,000	450,000	300,000	1,200,000
Add : Ending inventory	54,000	90,000	60,000	48,000	48,000
Total needs	234,000	360,000	510,000	348,000	1,248,000
Deduct : Beginning inventory	36,000	54,000	90,000	60,000	36,000
Required purchases—chips	198,000	306,000	420,000	288,000	1,212,000
Total cost of purchases	$ 396,000	$ 612,000	$ 840,000	$ 576,000	$ 2,424,000

Maxwell Company manufactures and sells a single product. The following costs were incurred during

Maxwell Company manufactures and sells a single product. The following costs were incurred during the company’s first year of operations:

  

Variable costs per unit:
Manufacturing:
Direct materials		$ 18
Direct labor		$ 7
Variable manufacturing overhead		$ 2
Variable selling and administrative		$ 2
Fixed costs per year:
Fixed manufacturing overhead	$ 200,000
Fixed selling and administrative expenses	$ 110,000

  

During the year, the company produced 20,000 units and sold 16,000 units. The selling price of the company’s product is $50 per unit.

  

Required:

1.	Assume that the company uses absorption costing:

  

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

  

Unit product cost

$ 37

  

b.	Prepare an income statement for the year. (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	$ 800,000
Cost of goods sold	592,000
Gross margin	208,000
Selling and administrative expenses	142,000
Net operating income (loss)	$ 66,000

  

2.	Assume that the company uses variable costing:

  

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

  

Unit product cost

$ 27

  

b.	Prepare an income statement for the 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
Sales		$ 800,000
Less: Variable expenses
Variable selling expense	$
Variable cost of goods sold		464,000
Contribution margin		336,000
Less: Fixed expenses
Fixed manufacturing overhead
Fixed selling and administrative expenses		310,000
Net operating income (loss)		$ 26,000

  

3.

The company’s controller believes that the company should have set last year’s selling price at $51 instead of $50 per unit. She estimates the company could have sold 15,000 units at a price of $51 per unit, thereby increasing the company’s gross margin by $2,000 and its net operating income by $4,000.

  

a.	Do you think the absorption costing approach is the proper way to assess the merits of the proposed price increase?
	No

b.	Do you think the variable costing approach is the proper way to assess the merits of the proposed price increase?
	Yes

c.	Using the variable costing approach, by how much will profits increase or decrease if the price increase in implemented?

Decrease by

$ n/r