AYB225 Tutorial 2 Solutions PDF

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AYB225 Tutorial 2 Costing DATA RELATES TO CASE STUDY : INCOME INFLATION - ABSORPTION v VARIABLE COSTING Price Fixed OH Production FOH per unit DM per unit DL per unit Variable manufacturing OH per unit

$1,000 $15,000,000 100,000 $150 $100 $200 $50

QUESTION 1 a) Assuming sales are 100,000 units, prepare the income statement using absorption costing. Revenues: 1,000 x100,000 units COGS: Beginning inventory Variable manufacturing cost: $350 x 100,000 units Allocated fixed manufacturing cost: $150 x 100,000 units COGS available for sale Deduct ending inventory COGS

$100,000,00 0 $0 $35,000,00 0 $15,000,00 0 $50,000,00 0 $0 $50,000,000

Gross Margin Operating Income

$50,000,000 $50,000,000

b) Assuming sales are 100,000 units, prepare the income statement using variable costing. $100,000,00 0

Revenues: 1,000 x 100,000 units Variable COGS: Beginning inventory Variable manufacturing cost: $350 x 100,000 units

$35,000,00 0 $0

Variable COGS available for sale Deduct ending inventory Variable COGS

$35,000,000

Contribution Margin

AYB225 Tutorial 2 – Solutions

$0 $35,000,00 0

$65,000,000

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AYB225 Tutorial 2 Costing Fixed manufacturing costs Operating Income

$15,000,000 $50,000,000

QUESTION 2 a) Assuming sales are 90,000 units, prepare the income statement using absorption costing. $90,000,00 0

Revenues: 1,000 x90,000 units COGS: Beginning inventory Variable manufacturing cost: $350 x 100,000 units Allocated fixed manufacturing cost: $150 x 100,000 units COGS available for sale Deduct ending inventory: 10,000 x $500

$0 $35,000,00 0 $15,000,00 0 $50,000,00 0 $5,000,000 $45,000,00 0

COGS

$45,000,00 0 $45,000,00 0

Gross Margin Operating Income

b) Assuming sales are 90,000 units, prepare the income statement using variable costing. $90,000,00 0

Revenues: 1,000 x90,000 units Variable COGS: Beginning inventory Variable manufacturing cost: $350 x 100,000 units

$0 $35,000,00 0

Variable COGS available for sale Deduct ending inventory

$35,000,00 0 $3,500,000 $31,500,00 0

Variable COGS

$58,500,00 0 $15,000,00 0 $43,500,00 0

Contribution Margin Fixed manufacturing costs Operating Income

AYB225 Tutorial 2 – Solutions

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AYB225 Tutorial 2 Costing

QUESTION 3 Determine fixed and variable costs: Fixed Variable CM per unit

= $50,000 + $60,000 + $10,000 = $120,000 = $22,000 + $500 = $22,500. = $25,000 - $22,500 = $2,500

(a)

Breakeven point = 120,000/2,500 = 48 cars

(b)

Net income after tax is $54,000, therefore operating income (before tax) = 54,000/.6 = $90,000. Sales units required to achieve desired income = 120,000 + 90,000 2,500 = 84 cars.

AYB225 Tutorial 2 – Solutions

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