Accounting
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The question gives me an absorption costing income statement for the first 2 quarters in a year. Here's a link to a screenshot:http://pho.to/A2dsj
I've been asked to prepare a contribution format income statement using variable costing. Fixed manufacturing overhead (FMOH) costs total $800,000. Variable manufacturing costs are $30 per unit. The FMOH is applied to units at a rate of $40 per unit. In the 1st quarter, the beginning inventory is 3,000 units, 20,000 units are produced and 16,000 units are sold. My calculations give me an ending inventory of 7,000 units. For the 1st quarter, my operating income is -$110,000 or ($100,000). I believe I got the right value for the the 1st quarter's operating income because the absorption costing's operating income of $170,000 should be $280,000 greater than the variable costing operating income, which it is ($170,000 = -$110,000 + 280,000). The $280,000 difference comes from the FMOH cost deferred to the inventory in the next quarter (=$40 FMOH / unit * 7,000 ending inventory units).
I'm going wrong somewhere in calculating the operating income for the 2nd quarter. In the 2nd quarter, the beginning inventory should be last quarter's ending inventory of 7,000 units. 20,000 units are sold and 14,000 units are produced. Note: 20,000 units were budgeted to be produced, but actual production was only 14,000 so I see that overhead needs to be applied here. Here's a screenshot of the statement I made for the 2nd quarter:http://pho.to/A2dwd
Apologies in advance about my bad handwriting & poor picture quality; hope you can read it! As the screenshot shows, I get operating income of $240,000. I know that variable costing's operating income should be $280,000 greater than absorption costing operating income because production was less than sales for the 2nd quarter. I know that the screenshot of my work doesn't account for the $240,000 of overhead that has to be applied. When I try adding underapplied overhead of $240,000 (6,000 units difference between actual and budgeted production * $40 FMOH per unit) to the variable cost of goods sold, then, my operating income is $30,000. This can't be the right answer either since variable costing operating income should be greater than absorption costing operating income of $30,000 by $280,000. How do I get to the operating income of $310,000?
I've been asked to prepare a contribution format income statement using variable costing. Fixed manufacturing overhead (FMOH) costs total $800,000. Variable manufacturing costs are $30 per unit. The FMOH is applied to units at a rate of $40 per unit. In the 1st quarter, the beginning inventory is 3,000 units, 20,000 units are produced and 16,000 units are sold. My calculations give me an ending inventory of 7,000 units. For the 1st quarter, my operating income is -$110,000 or ($100,000). I believe I got the right value for the the 1st quarter's operating income because the absorption costing's operating income of $170,000 should be $280,000 greater than the variable costing operating income, which it is ($170,000 = -$110,000 + 280,000). The $280,000 difference comes from the FMOH cost deferred to the inventory in the next quarter (=$40 FMOH / unit * 7,000 ending inventory units).
I'm going wrong somewhere in calculating the operating income for the 2nd quarter. In the 2nd quarter, the beginning inventory should be last quarter's ending inventory of 7,000 units. 20,000 units are sold and 14,000 units are produced. Note: 20,000 units were budgeted to be produced, but actual production was only 14,000 so I see that overhead needs to be applied here. Here's a screenshot of the statement I made for the 2nd quarter:http://pho.to/A2dwd
Apologies in advance about my bad handwriting & poor picture quality; hope you can read it! As the screenshot shows, I get operating income of $240,000. I know that variable costing's operating income should be $280,000 greater than absorption costing operating income because production was less than sales for the 2nd quarter. I know that the screenshot of my work doesn't account for the $240,000 of overhead that has to be applied. When I try adding underapplied overhead of $240,000 (6,000 units difference between actual and budgeted production * $40 FMOH per unit) to the variable cost of goods sold, then, my operating income is $30,000. This can't be the right answer either since variable costing operating income should be greater than absorption costing operating income of $30,000 by $280,000. How do I get to the operating income of $310,000?