2024 – Sandi Scott obtained a patent on a small electronic device and organized Scott
BA 510 Week3: PROBLEM 5-21 Prepare And Reconcile Variable Costing Statements (LO 5-1, LO 5-2, LO 5-3) – 2024
Sandi Scott obtained a patent on a small electronic device and organized Scott Products, Inc., to produce and sell the device. During the first month of operations, the device was very well received on the market, so Ms. Scott looked forward to a healthy profit. For this reason, she was surprised to see a loss for the month on her income statement.
This statement was prepared by her accounting service, which takes great pride in providing its clients with timely financial data.
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Scott Products, Inc. |
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Sales (21,000 units) |
>$>$>$$ |
762,300 |
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Variable expenses: |
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Variable cost of goods sold |
>$>$>$$ |
245,700 |
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>variable sellingVariable selling and administrative expenses |
164,850 |
410,550 |
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Contribution margin |
>351351,750 |
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Fixed expenses: |
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Fixed manufacturing overhead |
201,600 |
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>fixed sellingFixed selling and administrative expenses |
216,000 |
417,600 |
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Net operating loss |
>$>$>$$ |
( 65,850) |
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Ms. Scott is discouraged over the loss shown for the month, particularly because she had planned to use the statement to encourage investors to purchase stock in the new company. A friend, who is a CPA, insists that the company should be using absorption costing rather than variable costing. He argues that if absorption costing had been used, the company would probably have reported a profit for the month. |
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Selected cost data relating to the product and to the first month of operations follow: |
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Units produced |
24,000 |
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>units soldUnits sold |
21,000 |
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Variable costs per unit: |
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Direct materials |
>$>$>$$ |
7.30 |
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Direct labor |
>$>$>$$ |
2.90 |
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Variable manufacturing overhead |
>$>$>$$ |
1.50 |
>variable sellingVariable selling and administrative expenses |
>$>$>$$ |
7.85 |
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Required: |
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1. |
Complete the following: |
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a. |
Compute the unit product cost under absorption costing. (Round your intermediate and final answers to 2 decimal places.) |
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Unit product cost |
>$>$>$$ |
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b. |
Redo the company%u2019s income statement for the month using absorption costing. (Input all amounts as positive values except losses which should be indicated by a minus sign. Round your intermediate calculations to 2 decimal places. Round your final answers to the nearest whole number.) |
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Absorption Costing Income Statement |
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(Click to select) Cost of goods sold Selling and administrative expenses Net operating income (loss) Gross margin Sales |
>$>$>$$ |
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(Click to select) Sales Selling and administrative expenses Net operating income (loss) Cost of goods sold Gross margin |
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(Click to select) Gross margin Contribution margin |
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(Click to select) Selling and administrative expenses Sales Gross margin Net operating income (loss) Cost of goods sold |
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(Click to select) Net operating income Net operating loss |
>$>$>$$ |
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c. |
Reconcile the variable and absorption costing net operating income (loss) figures. (Loss amounts and amounts to be deducted should be indicated with a minus sign. Round your intermediate calculations to 2 decimal places. Round your final answers to the nearest whole number.) |
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Reconciliation of Variable Costing and Absorption Costing Net Operating Incomes |
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Variable costing net operating income (loss) |
>$>$>$$ |
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(Click to select) Add Deduct : (Click to select) Fixed manufacturing overhead cost deferred in inventory Fixed manufacturing overhead cost released from inventory |
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Absorption costing net operating income (loss) |
>$>$>$$ |
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3. |
During the second month of operations, the company again produced 24,000 units but sold 27,000 units. (Assume no change in total fixed costs.) |
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a. |
Prepare a contribution format income statement for the month using variable costing. (Input all amounts as positive values except losses which should be indicated by a minus sign. Round your intermediate calculations to 2 decimal places. Round your final answers to the nearest whole number.) |
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Variable Costing Income Statement |
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(Click to select) Fixed manufacturing overhead Fixed selling and administrative expense Variable selling and administrative expense Contribution margin Variable cost of goods sold Sales Net operating income (loss) |
>$>$>$$ |
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Variable expenses: |
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(Click to select) Sales Fixed selling and administrative expense Net operating income (loss) Contribution margin Variable cost of goods sold Fixed manufacturing overhead Variable selling and administrative expense |
>$>$>$$ |
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(Click to select) Variable cost of goods sold Sales Net operating income (loss) Fixed manufacturing overhead Contribution margin Variable selling and administrative expense Fixed selling and administrative expense |
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(Click to select) Gross margin Contribution margin |
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Fixed expenses: |
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(Click to select) Net operating income (loss) Contribution margin Sales Fixed manufacturing overhead Fixed selling and administrative expense Variable cost of goods sold Variable selling and administrative expense |
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(Click to select) Net operating income (loss) Sales Variable cost of goods sold Variable selling and administrative expense Contribution margin Fixed selling and administrative expense Fixed manufacturing overhead |
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(Click to select) Net operating loss Net operating income |
>$>$>$$ |
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b. |
Prepare an income statement for the month using absorption costing. (Input all amounts as positive values except losses which should be indicated by a minus sign. Round your intermediate calculations to 2 decimal places. Round your final answers to the nearest whole number.) |
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Absorption Costing Income Statement |
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(Click to select) Gross margin Sales Net operating income (loss) Cost of goods sold Selling and administrative expenses |
>$>$>$$ |
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(Click to select) Cost of goods sold Sales Gross margin Net operating income (loss) Selling and administrative expenses |
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(Click to select) Contribution margin Gross margin |
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(Click to select) Net operating income (loss) Cost of goods sold Sales Gross margin Selling and administrative expenses |
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(Click to select) Net operating income Net operating loss |
>$>$>$$ |
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c. |
Reconcile the variable costing and absorption costing net operating incomes. (Loss amounts and amounts to be deducted should be indicated with a minus sign. Round your intermediate calculations to 2 decimal places. Round your final answers to the nearest whole number.) |
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Reconciliation of Variable Costing and Absorption Costing Net Operating Incomes |
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Variable costing net operating income (loss) |
>$>$>$$ |
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(Click to select) Deduct Add : (Click to select) Fixed manufacturing overhead cost released from inventory Fixed manufacturing overhead cost deferred in inventory |
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Absorption costing net operating income (loss) |
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