Basadre, Jessa

BSA 3rd yr

Managerial Accounting
Assignment no. 3 Absorption and Variable costing

TRUE OR FALSE
1. True 6. False
2. True 7. False
3. False 8. True
4. False 9. False
5. False 10. False

MULTIPLE CHOICE

1. ANSWER: B. $ 46,500 6. ANSWER: C. $ 60,000

Sales $ 127,500 Sales $ 120,000
Less costs of the period: Less: Prime costs 32,000
Direct materials 12,000 Variable OH 18,000
Direct labor 18,000 Variable M&A 10,000
Variable overhead 30,000 Contribution margin $ 60,000
Fixed overhead 21,000
Gross margin $ 46,500 7. ANSWER: B. $ 48,000
Contribution margin $ 60,000
2. ANSWER: B. $ 60,000 Fixed overhead (directly related)
(12,000)
Direct materials $ 12.000 (30,000 X 40%)
Direct labor 18,000 Segment margin $ 48,000
Variable overhead 30,000
8. ANSWER: B. $ 108,000 and $ 92,000
Variable cost of goods available $ 60,000 Sales $ 182,000
3. ANSWER: C. $ 67,500
Less: Prime costs 41,000
Sales $ 127,500 Variable OH 18,000
Less: Variable cost of goods available 60,000 Variable M&A 15,000
Contribution margin $ 67,500 Contribution margin $ 108,000

4. ANSWER: C. $ 67,500 Contribution margin $ 108,000

Sales $ 127,500 Fixed overhead (directly related)
16,000
Less: Variable cost of goods available 60,000 (40,000 X 40%)
VC Manufacturing margin $ 67,500 Segment margin $ 92,000

5. ANSWER: D. $ 67,500 AND $ 59,500 9. ANSWER: C. $ 904,000

Sales $ 127,500 Profit (Absorption costing) $ 728,000
Less: Variable cost of goods available 60,000 Fixed OH beginning 1,456,000
VC Manufacturing margin $ 67,500 Fixed OH ending (1,280,000)
Profit (Variable costing) $ 904,000

Sales $ 127,500 10. ANSWER: B. $ 552,000

Less: Variable cost of goods available 60,000 Profit (Variable costing) $ 728,000
Variable marketing cost 8,000 Fixed OH beginning (1,456,000)
Contribution margin $ 59,500 Fixed OH ending 1,280,000
Profit (Absorption costing) $ 552,000

11. ANSWER: B. taking a special order at less than

full price.
EXERCISES

1.
SEGMENTED INCOME STATEMENT (Absorption Costing)
X Y Z
Sales $ 50,000 $ 375,000 $ 140,000
Less COGS:
Prime costs $ 10,000 $ 270,000 $ 20,000
Variable overhead 10,000 60,000 60,000
Fixed overhead 5,000 25,000 25,000 355,000 20,000 100,000
Gross margin 25,000 20,000 40,000
Fixed admin. (30%) 3,000 9,000 6,000
Net operating income (loss) $ 22,000 $ 11,000 $ 34,000

2.
SEGMENTED INCOME STATEMENT (Variable Costing)
X Y Z
Sales $ 50,000 $ 375,000 $ 140,000
Less variable costs:
Prime costs 10,000 270,000 20,000
Variable overhead 10,000 60,000 60,000
Contribution margin 30,000 45,000 60,000
Less fixed costs:
Fixed overhead 5,000 25,000 20,000
Fixed admin. (30%) 3,000 9,000 6,000
Net operating income (loss) $ 22,000 $ 11,000 $ 34,000

3. In computing for the gross margin under absorption costing, fixed overhead is treated as a product cost, thus, it
is included in the cost of goods sold which is deducted from sales. While to get the contribution margin, under
variable costing, products costs consist solely of variable production costs, thus, only variable costs are deducted
from sales, and fixed costs are deducted after.

4. When product Y is discontinued, the net operating income for the companywide will only be $14,000, which is
lesser compared to the previous net operating income of $25,000. Therefore, product Y should not be
discontinued.

SHOULD PRODUCT Y BE DISCONTINUED?

X Y Z TOTAL X Z TOTAL
Sales $ 50,000 $ 375,000 $ 140,000 $ 565,000 $50,000 $140,000 $190,000
Less variable costs:
Prime costs 10,000 270,000 20,000 30,000 10,000 20,000 30,000
Variable overhead 10,000 60,000 60,000 130,000 10,000 60,000 70,000
Contribution margin 30,000 45,000 60,000 135,000 30,000 60,000 90,000
Less fixed costs:
Fixed overhead 5,000 25,000 20,000 50,000 5,000 20,000 25,000
Fixed admin. (30%) 3,000 9,000 6,000 18,000 3,000 6,000 9,000
Segmented operating income
22,000 11,000 34,000 67,000 22,000 34,000 56,000
(loss)
Less common costs (70%) 7,000 21,000 14,000 42,000 10,920 31,080 42,000
Net operating income (loss) $ 15,000 $ -10,000 $ 20,000 $ 25,000 $ 11,080 $ 2,920 $ 14,000