Chapter 7 Homework Question 1

Chapter 7 Homework Question 3

Cost of Goods Manufactured, using Variable Costing and Absorption Costing On March 31, the end of the first year of operations, Barnard Inc., manufactured 2,000 units and sold 1,700 units. The following income statement was prepared, based on the variable costing concept: Barnard Inc. Variable Costing Income Statement For the Year Ended March 31, 2041 Sales $884,000 Variable cost of goods sold: Variable cost of goods manufactured $500,000 Inventory, March 31 (75,000) (425,000) Total variable cost of goods sold Manufacturing margin Total variable selling and administrative expenses $459,000 (105,400) Contribution margin $353,600 Fixed costs: $228,000 Fixed manufacturing costs Fixed selling and administrative expenses 71,400 Total fixed costs (299,400) Operating income $54,200 Determine the unit cost of goods manufactured, based on (a) the variable costing concept and (b) the absorption costing concept. Variable costing 00 Absorption costing Variable and Absorption Costing-Three Products Winslow Inc. manufactures and sells three types of shoes. The income statements prepared under the absorption costing method for the three shoes are as follows: Winslow Inc. Product Income Statements-Absorption Costing - For the Year Ended December 31, 2011 Cross Training Shoes Golf Shoes Running Shoes Revenues $502,200 $316,400 $262,600 Cost of goods sold (261,100) (155,000) (175,900) Gross profit $241,100 $161,400 $86,700 Selling and administrative expenses (207,300) (116,200) (144,800) Operating income $33,800 $45,200 $(58,100) In addition, you have determined the following information with respect to allocated fixed costs: Golf Cross Training Shoes Running Shoes Shoes Fixed costs: Cost of goods sold $80,400 $41,100 $36,800 Selling and administrative expenses 60,300 38,000 36.800 These fixed costs are used to support all three product lines and will not change with the elimination of any one product. In addition, you have determined that the effects of inventory may be ignored. The management of the company has deemed the profit performance of the running shoe line as unacceptable. As a result, it has decided to eliminate the running shoe line. Management does not expect to be able to increase sales in the other two lines. However, as a result of eliminating the running shoe line, management expects the profits of the company to increase by $58,100. a. Are management's decision and conclusions correct? Management's decision and conclusion are incorrect. The profit will not be improved because the fixed costs used in manufacturing and selling running shoes will not be avoided if the line is eliminated. Foodback b. Prepare a variable costing income statement for the three products. Enter a net loss as a negative number using a minus sign. Winslow Inc. Variable Costing Income Statements-Three Product Lines For the Year Ended December 31, 20Y1 Cross Training Shoes Golf Shoes Running Shoes Revenues Variable cost of goods sold Manufacturing margin Variable selling and administrative expenses Contribution margin Fixed costs: Fixed manufacturing costs Fixed selling and administrative expenses Total fixed costs Operating income (loss) Foodback c. Use the report in (b) to determine the profit impact of eliminating the running shoe line, assuming no other changes. and the fixed costs would not be eliminated. Thus, the profit of the company would actually decline by . s , Management should keep the line and attempt to improve the profitability of the product by increasing prices, If the running shoes line were eliminated, then the contribution margin of the product line would be eliminated increasing volume, or reducing costs