Problem P5-1 Variable and Full Costing: Sales Constant but Production Fluctuates

Spencer Electronics produces a wireless home lighting device that allows consumers to turn on home lights from their cars and light a safe path into and through their homes. Information on the first three years of business is as follows:

2011 2012 2013 total

Units sold $15,000 $15,000 $15,000 $45,000

Units produced $15,000 $20,000 $10,000 $45,000

Fixed production costs $750,000 $750,000 $750,000

Variable production costs per unit 150 150 150

Selling price per unit 250 250 250

Fixed selling and administrative expense 220,000 220,000 220,000

Required:

Part a: Calculate profit and the value of ending inventory for each year using full costing.

2011 2012 2013

Fixed manufacturing overhead Amount Amount Amount

Divided by ??? Number Number Number

Title Formula Formula Formula

Tiltle Amount Amount Amount

Full cost per unit Formula Formula Formula

Sales Amount Amount Amount

Less cost of goods sold:

2008 Formula

2009 Formula

2010 Formula

Gross margin Amount Amount Amount

Less ??? Amount Amount Amount

Net income Formula Formula Formula Formula

Ending inventory 2008 Formula

Ending inventory 2009 Formula

Ending inventory 2010 Formula

Part b: Explain why profit fluctuates from year to year even though the number of units sold, the selling price, and the cost of structure remain constant.

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Part c: Calculate profit and the value of ending inventory for each year using variable costing.

2011 2012 2013

Fixed manufacturing overhead Amount Amount Amount

Title Amount Amount Amount

Units sold Amount Amount Amount

Selling price per unit Value Value Value

Sales Formula Formula Formula

Less??? Amount Amount Amount

Title Formula Formula Formula

Less fixed costs:

Title Amount Amount Amount

Title Amount Amount Amount

Tilte Formula Formula Formula Formula

Ending inventory 2008 Amount

Ending inventory 2009 Amount

Ending inventory 2010 Amount