Bucaloy, Romel B.

Cost Accounting Chapter 9 Assignment

9-17. Direct materials $45,000

+ Production labor $35,000
+ Factory utilities $18,500
+ Factory supervisor salary $9,600
+ Machine maintenance contract $7,500
B. $ 115,600

9-18. A. Higher, Lower

9-19. A.
Absorption Cost Method
= Variable SG&A Expenses 150,000 + Fixed SG&A Expenses 195,000
= 345, 000

Variable Cost Method

= Fix Overhead Cost 355,000 + Variable SG&A Expenses 150,000 + Fixed SG&A Expenses
195,000
= 700,000

9-25. 1. Calculation:
Beginning Inventory 100,000
+ 2017 Production ?

2017 Sales 400,000

+ Ending Inventory 50,000
Work-back
= 350,000 units 2017 Production

Variable Costing
Income Statement for the Zeta Company
For the Year Ended December 31, 2017

Sales Revenues (25*400,000) $10,000,000

Less Variable Costs
Beginning inventory: $6*100,000
$600,000 Variable manufacturing costs: $6*350,000
2,100,000 Cost of goods available for sale
2,700,000 Less ending inventory: $6*50,000
(300,000) Variable cost of goods sold
2,400,000 Variable operating costs: $2*400,000
800,000 Total Variable Costs
3,200,000
Contribution margin 6,800,000
Less Fixed costs
Fixed manufacturing overhead costs 1,625,000
Fixed operating costs 1,100,000
Total fixed costs
2,725,000 Operating income
$4,075,000

Absorption Costing
Fixed manufacturing overhead allocation rate =Fixed manufacturing overhead/Denominator
level machine-hours = $1,625,000/6,500= $250 per machine-hour
Fixed manufacturing overhead allocation rate per unit =Fixed manufacturing overhead
allocation rate/standard production rate = $250/50= $5 per unit
 Income Statement for the Zeta Company
For the Year Ended December 31, 2017

Sales Revenues (25*400,000) $10,000,000

Less Variable Costs
Beginning inventory: $6+$5*100,000
$1,100,000 Variable manufacturing costs: $6*350,000
2,100,000 Allocated fix manufacturing costs: $5*350,000
1,750,000 Cost of goods available for sale
4,950,000 Less ending inventory: $11*50,000
(550,000) Adjustment for manuf.
variances (125,000) Cost of Goods
Sold 4,275,000 Gross Income
5,725,000
Less Operating Costs:
Variable operating costs: $2*400,000 800,000
Fixed operating costs 1,100,000
Total Operating Costs
1,900,000
Operating Income
$3,825,000
3. I believe that the differences are due to the treatment of fixed manufacturing costs that varies
on both method.

Under variable costing:

Revenues $10,000,000
Operating income 4,075,000
Operating income as percentage of revenues 40.75%

Under absorption costing:

Revenues $10,000,000
Operating income 3,825,000
Operating income as percentage of revenues 38.25%
4. I will recommend the absorption costing because it complies more with GAAP and more
accurately tracks profits than variable costing
9-25. 1.) A. 440,000
Revenues $4,800,000
Cost of Goods Sold
Variable $2,400,000
Fix 360,000 (2,760,000)
Gross Income 2,040,000
Operating Costs
Variable
1,200,000 Fix
400,000 (1,600,000) Operating
Income $440,000
2.) C. 200,000
Revenues $4,800,000
Cost of Goods Sold
Variable Man. Cost $2,400,000
Variable Op. Cost 1,200,000 (3,600,000)
Gross Income
1,200,000 Operating Costs
Fix Man. Cost
600,000 Fix
Op. Cost 400,000 (1,000,000)
Operating Income $200,000

9-27. 1.) Variable Costing

Income Statement for the Regina Company
For the Year Ended December 31, 2017

Sales Revenues (17500*450) $7,875,000

Less Variable Costs
Beginning inventory: $0
Variable manufacturing costs: $115*18,000 2,070,000
Cost of goods available for sale
2,070,000 Less ending inventory: $115*500
(57,500) Variable cost of goods sold
 2,012,500 Variable operating costs: $45*17,500
787,500 Total Variable Costs
2,800,000
Contribution margin 5,075,500
Less Fixed costs
Fixed manufacturing overhead costs  965,450
Fixed operating costs  1,366,400
Total fixed costs
2,725,000 Operating income
$1,543,150

2.) Absorption Costing  

Fixed manufacturing overhead rate = $1,200,000 / 20,000 units = $60 per unit

Income Statement for the Zeta Company

For the Year Ended December 31, 2017

Sales Revenues (17500*450) $7,875,500

Less Variable Costs
Beginning inventory: $ 0
Variable manufacturing costs: $115*18,000
2,070,000 Allocated fixed manufacturing costs (18,000* $60)  
1,080,000 Cost of goods available for sale
3,150,000 Less ending inventory [500 units
($115 + $60) per unit] (87,500) Adjustment for manuf. variances
120,000 Cost of Goods Sold
3,182,500 Gross Income
4,693,000
Less Operating Costs:
Variable operating costs: (17,500* $45) 787,500
Fixed administrative costs 965,450
Fixed marketing costs
1,366,400 Total Operating Costs
3,119,350
Net Income $1,573,650
3. Because the inventory increased by 500 units that leads to a lowers cost of goods sold in the
absorption costing.
4. I will recommend the absorption costing because it complies more with GAAP and more
accurately tracks profits than variable costing.

9-40. 1. Variable Costing

Income Statement for the Whistler Inc.
For the Year Ended December 31, 2014

Revenues (995*$750) $746,250

Less Variable Costs
Beginning inventory: $
78,000 Variable manufacturing costs: $325*240 292,500
Cost of goods available for sale
370,500 Less ending inventory: $325*145
(47,125) Variable cost of goods sold
 323,375 Variable operating costs: $15*995
14,925 Total Variable Costs
338,300
Contribution margin 407, 950
Less Fixed costs
Fixed manufacturing overhead costs  280,000
Fixed operating costs  112,000
Total fixed costs
392,000 Operating income
$15,950
2.) Absorption Costing  
 $280 fixed manufacturing cost + $325 variable manufacturing cost = $605 per board
 Fixed manufacturing cost per unit = Fixed manufacturing cost/denominator level of
production
= $280,000/1,000 snowboards
= $280 per snowboard
 Income Statement for the Whistler Inc.
For the Year Ended December 31, 2014

Revenues (995*$750) $746,250

Less Variable Costs
Beginning inventory: ($605*240)
$145,200 Variable manufacturing costs: (325*900)
292,500 Allocated fixed manufacturing costs ($280*900)  
252,000 Cost of goods available for sale
689,700 Less ending inventory (145 * $605)
(87,725) Adjustment for manuf.
Variances [$280 (1,000 – 900)] 28,000 Cost of Goods Sold
629,975 Gross Income
116,275
Less Operating Costs:
Variable shipping costs: (995* $15) 14,925
Fixed administrative costs 112,000
Total Operating Costs
126,925
Operating Loss ($10,560)

3. a. Break-even point in units = 280000+112000/750-(325+15)

= 956 units
b. $410N= $392,000 + $280N – $252,000
$410N - $280N = $392,000 – $252,000
$130N = $140,000
N = 1,077 units

4. Proof of breakeven point:

a. Variable Costing:

Revenues, $750*956 $717,000

Variable costs, $340*956 325,040
Contribution margin, $410*956 392,000
Fixed costs 391,960
Operating income $ 40
 b. Absorption costing:

Revenues, $750*1,077 $807,750

Cost of goods sold:
Cost of goods @ standard cost, $605*1,077 651,585
Production-volume variance, $280 (1,000 – 900) 28,000 679,585
Gross margin 128,165
Variable shipping costs, $15*1,077 16,155
Fixed selling and administrative costs 112,000 128,155
Operating income $ 10

5. If the fixed administrative costs were reclassified as production costs, there would be no
change in breakeven sales using variable costing. However, this is not the same in the absorption
costing.
6. The additional $30 per unit variable production cost will affect the unit contribution margin. It
will decrease from $410 to $380 affecting also the breakeven point to increase.

Variable costing:
N = $392,000/ $380
N = 1,032 units

Absorption costing:
$380N = $392,000 + $280N – $252,000
$380N – $280N = $392,000 – $252,000
$100N = $140,000
N = 1,400 units